trade discount

A/c entries 1764 views 1 replies

Dear all,

our client has debited their creditors accounts for the cash discounts as well as trade discounts which is shown in the accounts under the head of indirect income, my query is whether the accounting treatment correct or any principle of accounting is deviated ?,kindly suggest the correct treatment.

For e.g.

1.Bill booked for purchase Rs.1000000 in august 

2.debit note recd from creditor in sep. towards disc. rs. 100000

3.entry for disc on above date

   creditors a/c ......Dr.  100000

                 to Disc. Recd a/c (cash/trade disc.)  100000

 

Whether its correct ??

 

 

 

 

Replies (1)

Normal discount is indirect income and the treatment is to credit the profit and loss account.

 

Trade discount should be reduced from purchases, not credited to profit and loss account. In fact this is a corrective entry to reduce from purchase. Trade discount should not actually be recorded in the books at all.

Or else the inventory will be overvalued, and GP margin can be affected.

 

 


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