17 January 2008
Dear all Journal entry for discount received is
Party(Creditors) A/c Dr.
To Discount Received A/c
Creditors account is a personal A/c, Personal A/c's principle says "Debit the receiver, Credit the giver" Now My question is Why we are debiting the parties A/c?(as per the principle why we are not crediting the same)
18 January 2008
DISCOUNT IS A NOMINAL ACCOUNT BUT NOT A PERSONAL ACCOUNT. IN NOMINAL ACCOUNTS , THE PRINCIPLE IS DR. IF IT IS AN EXPENDITURE CR. IF IT IS AN INCOME YOU HAVE DEBITED PARTY ACCOUNT MAKING HIM A DEBTOR ( MEANING HE OWES YOU THIS MONEY). EVEN IF THIS DISCOUNT IS RECEIVED BY YOU IN CASH FORM OR CHEQUE FORM , YOU WILL PASS FOLLOWING ENTRY DR. CASH/BANK A/C CR. DISCOUNT RECEIVED A/C R.V.RAO
19 January 2008
In such cases Discount is given by the creditors and he forgoes some of his recievables against you which results into less paymenst by you to him. Hence creditors in case of discounts is the an fictitious reciever of funds just like in case of bank/cash payment to creditor.
22 January 2008
We can also view the whole thing from another perspective. This transaction leads to decrease in liability of creditors and when there is decrease in liability we debit the account and on the other hand there is an income in terms of discount received and to record the income we credit the account.