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Provision for discount
Accountancy
Generally the discount is allowed by the firm to those who bought goods from them. So why we have to give a provision for the discount? Explain with some examples please.
Answers (4)
Best Answer
Discount is also allowe on debtors for prompt payement. In case we give discount to debtors it will be a loss for us. That's why to make such loss good we need to provide provision for discount. Which will not only assist in today's transaction but also with future transaction when we give discount to customers.
For example The trial balance shows on 31.03.2021 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 Sundry Debtors 85,000 Less: Bad debts 5,000 Less: Provision for bad and doubtful debts 4,000 Less: Provision for discount on debtors 1,520 Final amount = 74,480
