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Explain how to Account for Drawings, Discounts Allowed and Discounts Received.

      

Explain how to Account for Drawings, Discounts Allowed and Discounts Received.

  

Answers


Wilfred
1. Drawings The owner makes drawings from the firm in various ways:
i) Cash or bank withdrawals
When the owner withdraws money from the business we debit drawings and credit cashbook (cash in hand or cash at bank).
ii) Taking goods for own use and
When the owner takes out some of the goods for his own use, we debit drawings and credit purchases.
iii) Personal expenses, paid by the business
Here we debit the drawings and credit expense account

2. Discounts
Discounts received.
A discount received is an allowance by the creditors to the firm to encourage the firm to pay the amount dues within the agreed time. It is an amount deducted from the invoice price.
When a discount is given by the supplier then we debit creditor’s account and credit discounts received e.g. A. Ltd sells some goods on credit to B Ltd.Sh.1,000 under the terms of sale, B Ltd, will receive a discount of 5% if they pay the amount due within one month. B decides to take up the offer and pays the amount within the given time. B will record the transaction as follows.
Debit: Creditor – A Ltd
Credit: Discounts Received

3. Discounts Allowed
These are the allowances made by a firm on the amounts receivable from the customers to encourage prompt payment. The amounts deducted from the sales invoice. In the previous example when A Ltd issued the discount and was taken up by B the entries will be:
i. Debit - discount allowed
ii. Credit - debtors - B Ltd.
Wilfykil answered the question on February 28, 2019 at 07:01


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