Question

Write a brief note on accounting treatment of discount in cash book.

Answer 1

1. Discount column represents discount allowed on the debit side and discount received on the credit side.
2. In the discount columns, cash discount, i.e., cash discount allowed and cash discount received is recorded.
3. The net amount received is entered in the Amount column on the debit side and the net amount paid is entered in the amount column on the credit side.
4. For the seller who allows cash discount, it is a loss and hence it is debited and shown on the debit side of the cash book.
5. For the person making payment, discount received is a gain because less payment is made and it is credited and shown on the credit side of the cash book.
6. The cash columns are balanced. Discount columns are not balanced, since debit represents discount allowed and credit represents discount received. They are totalled, separately.

The periodical totals of discount columns are posted as under:

1. Debit Discount allowed account as ‘To Sundry Accounts as per Cash book’, with the periodical total of the discount allowed column.
2. Credit Discount received account as ‘By Sundry Accounts as per Cash Book’ with the periodical total of the discount received column.