Discount Allowed and Discount Received

A discount allowed is an accounting term where the seller grants a discount in payment to the seller. This kind of discount can be the early payment discount that is granted by the seller to the buyer on credit sales. There may be other examples of discount allowed such as discount offered by seller on complete upfront payment, or discount by the seller on a high volume purchase by the buyer, or a discount in payment offered by the seller when the buyer is buying the goods during launching or promotion period when the goods are being sold at a reduced price. Sometimes seller also grants discount on the goods that seller wants to sell immediately to clear the inventory.

The discount received is reverse of the accounts allowed as in this situation where the buyer is granted with discount by the seller of goods and services. In the situation of discount allowed the reduction in revenues is recorded as the discount directly affects the collection of the revenues. The business has to debit contra revenue as a result of discount allowed.

On the other hand when a buyer receives discounts it is considered to be a reduction in the expense of the business. As a result then an account that is associated with that purchase is credited that is used to record the discounted amounts. Whenever a buyer receives discount he debits the accounts payable with the total amount paid and credits the cash account with the discounted amount as well.

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