Banking a/c

please explain a little bit more. in whose books you are talking about.

Rebate on Bills Discounts is only applicable to Banking A/c's which refers to that amount of unexpired period of bill which falls in next Accounting Year.

Like if the bank has discounted the bill for a period of 2 Months on 01.03.2011 than it will expire on 30.04.2011 exactly 2 months. Here bank earns the total discount of Rs. 5000/- than Rs. 2500/- that is half of the discount is for April 2011 which is for the next accounting year. So that amount ie.. rS. 2500 will be treated as Rebate on Bills Discounted and this amount will get credited to P&L in next accounting year.

You can follow the Accounting entries as follows:

Situtation: Mr. A gets his Bill discounted from Bank on 01.03.2010 for 2 months worth Rs. 2 Lac Discounting Charges Rs. 2%.

Explanation: Here bank pays Rs. 2 lac - 2% to Mr. A on 01.03.2010 and collects Rs. 2 Lac from the Drawee Rs. 2 Lac on 03.05.2011 (including 3 days grace period). Bank earns a total discount of Rs. 4000/- i.e. 2 % on 2 Lac.

Now the question arises is that Rs. 4000/- is for the period of March, 2011 & April, 2011 which falls in 2 different accounting years. Rs. 2000/- is to be credited to P&L of F.Y. 2010-11 and another in F.Y. 2011-12.

We make the journal entries as

01.03.2011

Bill Receivable A/c Dr. 200000

To Customer A/c 196000

To Discount A/c 4000

31.03.2011

Discount A/c 4000

To P&L 2000 (Income for current year F.y. 2010-11)

To Rebate on Bill Discounted A/c 2000 (Income received in advance for f.y. 2011-12)

01.04.2011 (In the begining of F.Y. 2011-12)

Rebate on Bill Discounted A/c Dr. 2000

To Discount A/c 2000

31.03.2011 (At the end of F.Y. 2011-12)

Discount A/c Dr. 2000

To P&L A/c 2000

How the whole concept will be clear to you.