Page 195 - DMGT104_FINANCIAL_ACCOUNTING

Unit 8: Financial Statements

Notes

Note Bad debts recovered are directly transferred to Profit & Loss A/c.
12. For Discount Provision on Creditors
The provision or reserve for discount on creditors is created for expected discount from
the creditors who are paid dues promptly.
(i) When provision for discount on creditors is created:
Provision for Discount on Creditors Account Dr.
To Profit & Loss Account
Provision for discount on creditors is deducted from Creditors in the liability side
of Balance Sheet and shown in the Credit side of Profit & Loss Account.
(ii) When discount on creditors is written off against the provision:
Discount on Creditors Account Dr.
To Provision for Discount on Creditors Account
Illustration 16: A trader maintains a provision for discount on creditors A/c. The following
balances have been extracted from his books.
Date Date
31.12.10 31.12.11
( ) ( )
Discount Received 300 50
Sundry creditors 15,000 10,000
Provision for Discount on Creditors (opening) 400 To be credited @ 2% for 05 & 06
You are required to prepare Provision for Discount on creditor’s A/c as well as discount
received A/c.

Solution:
Discount Received A/c
Date Particulars ( ) Date Particulars ( )
31.12.10 Prov. For discount on 300 31.12.10 By S. creditors 300
creditors A/c
31.12.10 Prov. For discount on 50 31.12.11 By S. creditors 50
creditors A/c

Provision for Discount on Creditors A/c
Date Particulars ( ) Date Particulars ( )
31.12.10 To Balance b/d 400 31.12.10 By Discount Recd. 300
31.12.10 To P & L A/c 200 31.12.10 By Balance c/d 300
(Balancing figure) 2% on 15,000
600 600
1.1.11 To Balance b/d 300 31.12.11 By Discount Recd. 50
By P&L A/c 50
By Balance c/d 200
2% on 10,000
300 300

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