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The books of prime entry, discounts and sales tax

Cash discounts

Cash discounts are often referred to as ‘settlement discounts’ or ‘prompt payment
discounts. Note that while they encourage a customer to pay early, a supplier cannot
force a customer to pay for goods earlier than they have previously agreed.

 When offering the discount to a customer – This type of discount is a
discount allowed. This is accounted for as an expense.

 When being offered the discount from a supplier – This type of discount is a
discount received. This is accounted for as income.

The double-entry to record a discount is as follows.

Discount allowed:

Debit Discounts allowed (expense)

Credit Sales ledger control account

Discount received:

Debit Purchase ledger control account

Credit Discounts received (income)

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