903 Cash Discounts Earned

Additions/Deductions

Addition to Income

Synopsis

Account 903 is established to record the reduction in price as a result of timely payment to Trade Creditors.

Debits

Credits

 

  1. The amount of discount allowed by creditors for paying in full by an agreed upon deadline

 

Example 1

Record the net payment of a vendor’s statement in the amount of $15,475.  The cash discount earned is $310, which allows a 2% cash discount, if paid within 10 days.

Journal: Cash Disbursements

Entry:

 

Debit

Credit

Account 300

Accounts Payable – Trade Creditors

$15,475

 

Account 202

Cash in Bank

 

$15,165

Account 903

Cash Discounts Earned

 

$310