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Journal Entry of Payment and Discount Allowed

Question : Mr. A paid Rs.1950 by cheque to y & co. allowed a discount of Rs. 50

Chiranjit Baardhan from India

Solution : Chiranjit! A has paid Rs. 1950 to Y, it means, Mr. A has taken something from Y. Y allowed discount as reward. So, this discount is the income of A. Y gets benefit of converting his debt into cash instead of becoming bad debt. With payment, our bank balance goes from business. So, it will be credited. Y ltd is the receiver of our bank balance. So, his personal account will be debited. Discount is our income. So, it will be credited.

Y Ltd Account Dr. 2000

Bank Account Cr. 1950

Discount Earned Cr. 50

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