Discount received

What it means

A cash discount received from suppliers for early settlement; income of the business.

Example

Paying a supplier early and getting RM40 off is a discount received.

Why it matters

It is income in the income statement and reduces the amount paid to suppliers.

In practice

Discount received is income. It carries a credit balance and is added on the credit side of the income statement, after gross profit. It arises only from cash discounts, the small reward a supplier offers for settling an invoice quickly. In double entry, the business debits the supplier's account (reducing what it owes) and credits the discount received account.

For example, a business owes a supplier RM1,000 and is offered a 3 per cent discount for prompt payment. It pays RM970. It debits the supplier RM1,000, credits bank RM970 and credits discount received RM30.

Students often confuse it with discount allowed, its mirror image. That is a discount the business gives its own customers, and it is an expense (a debit).

Both are different from trade discount, a reduction on the list price at the point of sale. Trade discount never appears in the ledger, because purchases and sales are recorded at the reduced net figure. Mixing up income and expense here pushes profit the wrong way twice.

If you find discounts confusing, one of our teachers can go through them with you until you can spot each type quickly. Book a trial class.

Related terms

• Discount allowed
• Trade payable
• Cash discount

Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.