Multiple choice

How will discount allowed be treated, if it appears in the trial balance and provision for discount on debtors accounts appears?

  1. Shown on the credit side of the Profit & Loss a/c

  2. Shown on the debit side of the Profit & Loss a/c

  3. Shown on the debit side of the Trading Account

  4. No entry at all
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Discount allowed is an expense to the business, so it appears on the debit side of the Profit & Loss account. When it appears in the trial balance, it means the expense has already been incurred during the year. The provision for discount on debtors is a separate contra-asset account that's created based on estimates, not directly linked to how discount allowed is treated in the P&L.

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