Source document for Cash discount

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When a seller offers a cash discount to a buyer, the appropriate source document to issue is a credit note. This document formally records the discount, reducing the sales amount and affecting accounts receivable. It's crucial for accurate accounting and can also help adjust GST liabilities if the discount was agreed upon beforehand.

CA Anmol Grover

CA Anmol Grover (Querist)

30 January 2024 In case of cash discount given to a buyer, the seller will record Discount Allowed as an expense in Profit and loss account. Which document will be issued to the buyer showing the amount of discount allowed to him?

CA Altamush Zafar

CA Altamush Zafar (Expert)

31 January 2024 A credit note will suffice

CA Anmol Grover

CA Anmol Grover (Querist)

31 January 2024 thanks for your response
Credit Note will Dr. Sales A/c and Cr. Debtor A/c then how discount would appear in Discount allowed A/c?

RAJA P M

RAJA P M (Expert)

31 January 2024 It's can't be debit in sales account. It will separately account as Discount Paid...

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)

17 August 2025 A Credit Note is the correct source document to issue when a cash discount is allowed post-invoice. It captures the reduction in sales and accounts for it properly—as an expense in your Profit & Loss (Sales Discounts) and accounts receivable adjustment.
Why Credit Note?
It formalizes the discount and enables correct accounting entries.
It can adjust your GST liability—provided the discount was agreed upon beforehand (e.g., via PO or contract). Without documented terms, GST may still apply.
In short:
Journal Entries
Debit: Sales Discounts (contra-revenue)
Credit: Debtor / Accounts Receivable
Document
Issue a Credit Note referencing the original invoice and stating the discount amount.
This ensures both accounting accuracy and GST compliance. Happy to assist further if you’d like to format a sample credit note template!

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