Glossary
Discount allowed
A reduction a business gives its credit customers for paying promptly.
What it means
A cash discount granted to customers for early settlement; an expense of the business.
Example
Allowing a customer RM50 off for paying within 14 days is a discount allowed.
Why it matters
It is an expense in the income statement and reduces the amount received from customers.
In practice
Discount allowed is an expense of the selling business. It is given to credit customers who settle their accounts quickly. It is debited to a discount allowed account and listed among expenses in the income statement, which reduces profit. In the cash book it is often recorded in a memorandum discount column on the debit (receipts) side. The total is then posted to the discount allowed account.
Suppose a customer owes RM1,000 and is offered a 5% cash discount for prompt payment. They pay RM950. The RM50 discount allowed is written off against the debt, so the customer's account clears in full.
Students often confuse it with discount received, the mirror image from the buyer's side, which is income and not an expense. The simple test is the direction of the discount. Discount allowed goes to your customers and costs you. Discount received comes from your suppliers and benefits you.
If discounts keep ending up on the wrong side, one of our teachers can work through some examples with you. Book a trial class.
Related terms
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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