Recording a Cheque Receipt After Discount: Journal Entries and Explanation

Accurate bookkeeping is crucial for any business, especially when it comes to recording payments received after applying discounts. This article will guide you through the process of recording a cheque receipt of Rs. 4500 after a 10% discount has been applied, and explain the steps involved using proper journal entries.

Understanding the Initial Scenario

Situation: A cheque of Rs. 4500 was received after a 10% discount was applied. To find the original amount before the discount, follow these steps:

Step 1: Calculate the Original Amount

Let the original amount be x. A 10% discount means you received 90% of x, i.e., 0.9x. Given: 0.9x 4500 Solving for x: x 4500 / 0.9 5000

Journal Entry for the Cheque Receipt

To record the receipt of the cheque, the following journal entry should be made:

Date: YYYY-MM-DD

Date Account Title Debit Rs. Credit Rs. Cash/Bank Account 4500 Discount Allowed Account 500 Sales/Revenue Account 5000

Explanation:

Cash/Bank Account: Debited with Rs. 4500, the amount received. Discount Allowed Account: Debited with Rs. 500, the discount offered. Sales/Revenue Account: Credited with Rs. 5000, the original sale amount.

Journal Entry for Revenue Recognition and Discount

To record the receipt of the cheque after deducting a discount, a slightly different approach is used:

Debit: Cash/Bank Account - Rs. 4500

Credit: Revenue/Income Account - Rs. 5000 (full amount before discount)

The discount amount is not directly recorded in this journal entry because it’s already accounted for in the difference between the Cash/Bank received and the full revenue amount.

Example of Adjusting Journal Entry for Cash Discount

When you pay Abhijeet Sons and receive a cash discount:

Debit: Accounts Payable to Abhijeet Sons Credit: Cash for the 10% discount received

Explanation:

You are decreasing the amount you owe to Abhijeet Sons (Accounts Payable) as a debit. You are increasing the cash you have on hand as a credit.

This adjustment ensures that your financial records accurately reflect the actual transactions and payments made by your business.

By following these steps and using the correct journal entries, you can maintain accurate and consistent financial records, helping to improve your business's financial health and compliance with tax regulations.