Question -
Answer -
A business allows discounts to debtors for encouraging them to clear the debts. The amount of discount that a debtor will receive is estimated and accounted for by creating a provision for discount on debtors. It is only for those debtors who repay on time. The journal entry for such event can be written as:
Profit and Loss A/c
Dr.
To Provision for Discount on Debtors A/c
Discount to debtors is an expense and hence it is shown in expense side of P & L account and deducted from assets side in the balance sheet.