Provision for discount
on Creditors
Similar to
cash discount allowed to debtors, the firm may have a chance to receive the
cash discount from the creditors for prompt payment. Provision for discount on
Creditors is calculated at a certain percentage on Sundry Creditors. Provision
for discount on creditors will be shown on the credit side of Profit and Loss
account and on the liabilities side of the Balance sheet by way of deduction
from Sundry creditors. Provision for discount on creditors is made when the
company/firm is certain that the creditors are no longer payable. This
generally happens in a case where the old creditors are not traceable or the
creditors have agreed to restructure their outstanding with the hypothecation
of any asset.
Importance
of Provision for discount on creditors
a) With this, we can show net receivable amount of discount in profit and loss account and our profit and loss account will show correct net profit or loss.
b) We can also analyze our net reserve by adjusting each receivable and payable provision.
a) With this, we can show net receivable amount of discount in profit and loss account and our profit and loss account will show correct net profit or loss.
b) We can also analyze our net reserve by adjusting each receivable and payable provision.
Effect
of provision for discount on creditors account in final accounts
A) In profit and loss account
Balancing figure of provision for discount on creditor account will be shown in profit and loss account.
B) In balance sheet
In balance sheet we will deduct new provision for discount on creditors from sundry creditors in current liabilities.
A) In profit and loss account
Balancing figure of provision for discount on creditor account will be shown in profit and loss account.
B) In balance sheet
In balance sheet we will deduct new provision for discount on creditors from sundry creditors in current liabilities.
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