Provision for Discount on Debtors

A provision for discounts to debtors who pay early is created in the current year itself.

Accounting Entries

Profit and Loss Account     Dr.
Provision for Discount on Debtors Account

(For provision for discount created on Debtors)

It is shown on the Debit side of the Profit and Loss Account.

Provision for Discount on Debtors is deducted from the Debtors in the Balance Sheet.

Note:  Provision for discount on debtors will be deducted after ‘Further bad debts’ and ‘Provision for doubtful debts’ are deducted from the Debtors.

Provision for Discount on Creditors

When the business makes prompt payments of its debts, it is bound to receive Discounts from its creditors.

Although the discounts will be earned in the next year, the discounts so earned are an income of the current year. A Provision for such discount is made in the current year itself so that that the discounts thus earned may be credited to the Profit and Loss Account of the current year.

 

 Provision for Discount on Creditors Account   Dr.
  Profit and Loss Account  
(For provision for discount on Creditors)  

 

Accounting Treatment

Provision for Discount on Creditors will be shown on the Credit side of the Profit and Loss Account.

It is deducted from Sundry Creditors on the Liabilities side of the Balance Sheet.

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