Provision for Discount on Debtors :

To motivate the debtors to make prompt payments, cash discount may be allowed to them. After providing provision for bad and doubtful debts, the remaining debtors are called as good debtors. They may pay their dues in time and avail themselves of the cash discount permissable. So a provision for discount on good debtors at a certain percentage may have to be created.

Example: The Trial Balance as on 31st March 2004 shows the following:
Sundry debtors                                   Rs. 45,000

Adjustment: Create 2% provision for discount on Debtors.

Adjusting Entry

Date	Particulars	L.F	Debit Rs.	Credit Rs.
2004
31-Mar	Profit and Loss Account                                                                                                               Dr		900
	To Provision for discount on Debtors			900
	(2% provision for discount on Debtors)

 

Profit and Loss Account for
the period ended 31st March, 2004

Dr.                                                                                                                                                                                                                                                Cr.

Particulars	Rs.	Rs.	Particulars	Rs.	Rs.
To Provision for discount on debtors	900

 

Balance Sheet on 31st March 2004

Particulars	Rs.	Rs.	Particulars	Rs.	Rs.
			Sundry Debtors	45,000
			Less: Provision for discount on debtors	____900
					44,100

 

Example: The trial balance shows on 31.03.2004,
Sundry debtors Rs. 85,000

Adjustments: Bad debts written off Rs. 5,000. Provide @ 5% provision for bad and doubtful debts and @ 2% provision for discount
on debtors.

Debtors as per Trial Balance                                                                     85,000
Less: Bad debts                                                                                               5,000
Amount for which Bad & doubtful debts is to be calculated            80,000
Less: 5% Provision for bad and doubtful debts                                     4,000
Estimated value of good debtors                                                           76,000
Less: 2% Provision for discount on debtors                                           1,520
 74,480_

Adjusting Entries

Date	Particulars	L.F	Debit Rs.	Credit Rs.
2004
31-Mar	Bad debts A/c                                                                                                         Dr		5,000
	To Sundry debtors A/c			5,000
	(Bad debts written off)
“	Profit and Loss A/c                                                                                               Dr		4,000
	To Provision for bad and doubtful debts A/c			4,000
	(5% Provision for bad and doubtful debts)
“	Profit and Loss A/c                                                                                              Dr		1,520
	To Provision for discount on debtors A/c			1,520
	(2% Provision for discount on debtors)

 

Provision for discount on debtors will be shown

i) on the debit side of Profit and Loss account and

ii) on the asset side of the Balance sheet by way of deduction from Sundry debtors (after deducting bad debts written off and provision for bad and doubtful debts).

Profit and Loss Account for
the year ended 31st March, 2004

Dr.                                                                                                                                                                                                                                                  Cr.

Particulars	Rs.	Particulars	Rs.
To Bad debts A/c	5,000
To Provision for Bad and doubtful debts A/c	4,000
To Provision for discount on debtors	1,520

 

Balance Sheet as on 31st March, 2004

Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
			Sundry Debtors	85,000
			Less: Bad debts	5,000
				80,000
			Less: Provision for bad and doubtful debts	4,000
				76,000
			Less: Provision for discount on debtors	1,520
					74,480

 

Note :

Transfer Entry

Date	Particulars	L.F	Debit Rs.	Credit Rs.
2004
31-Mar	Profit & Loss A/c                                                                                                                 Dr		5,000
	To Bad debts A/c			5,000
	(Bad debts A/c closed by transfer to Profit & Loss A/c)

 

Bad Debts Account
Dr.                                                                                                                                                                                                                                                  Cr.

Date	Particulars	Rs.	Date	Particulars	Rs.
2004			2004
31-Mar	To Sundry Debtors A/c	5,000	31-Mar	By Profit & Loss A/c	5,000
		5,000			5,000