Journal Entry for Discount received

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Ravikumar R C (Querist)

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)

Regards
Ravikumar r c
Email:ravikumarrc@gmail.com

R.V.RAO

R.V.RAO (Expert)

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

Devendra Mishra

Devendra Mishra (Expert)

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.

Anshuman Bardhan

Anshuman Bardhan (Expert)

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.

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