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In this part, we will teach you the accounting treatment of provision for discount on debtors. Suppose a big firm Del who is selling laptop, starts to sell laptop on credit to reputed customers. But sometime, this company may need money for fulfilling the need of current business. For recovering money fastly, company has to allow discount to those debtors who will pay before maturity. So, discount on debtors is loss of company because if any company wants his credit amount fastly from debtors. It has to give benefits in the form of discount.

Debtors have not to pay the amount equal to discount allowed. So, it is very difficult for company to cover the cost of product which are lost in discount allowed. Company uses accounting skill that says to company why are taking tension. Dear company, create a fund and give its name as provision for discount on debtor. After this, allow accountant to deduct same amount out of profits of company. It may be 1% to 20 % or what company estimates. It is helpful to use company's profit effectively. Like provision for doubtful debts, this fund can also used to buy the goods in future in case loss happened. This amount is calculated on the net debtors after deducting the amount of provision of doubtful debts.

Calculation of provision for discount on debtors :

Total debtors as per trial balance XXXX

Less bad debts of outside trial balance XXXX

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balance                                         XXXX

Less new provision of bad debts          XXXX

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Net debtors                                           XXXX

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Provision for discount on debtors = Net Debtors X Rate of Provision for Discount on debtors / 100

Accounting Treatment of Provision for discount on debtors in final Accounts

1. # We will transfer net needed provision for discount on debtors to profit and loss account after deducting new provision out of old provision for discount on debtors. It can be easily calculated by making provision for discount on debtor account.

2. # New provision for discount on debtor will be deducted from net debtors and balance will be shown as current asset in asset side of balance sheet.

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