Discount are very popular terms in present business. It can be considered as another form of business promotion to influence its buyer to buy their products. Discount received is the income of the company and is shown in income statement.
In business there is two types of discount i.e. Trade Discount and Cash discount. Trade discount not shown in Financial Statement where cash discount are shown in books of accounts.
Journal Entry for discount received:
Accounts Payable A/c DR
To, Cash A/c CR
To, Discount Received A/c CR
Example for discount received:
Suppose, XYZ Ltd paid $3 million to ABC Ltd in full and final settlement of their account for $4 million.
The journal entry of this transaction will be:
ABC Ltd (A/c Payable) DR $ 4 million
To, Cash Received (final settlement) CR $ 3 million
To, Discount Received CR $ 1 million