Multiple choice

Bill received of Rs. 3600, whose maturity date is after 3 months, is discounted today at the rate of 6% p.a. The correct entry is

  1. Bad Debts A/c Dr 3,600
    To Cash A/c 3,546
    To Discount A/c 54
  2. Cash A/c Dr 3,600
    To B/R A/c 3,600
  3. Cash A/c Dr 3546
    Discount A/c Dr 54
    To B/R A/c 3600

  4. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Cash is received, so it would be debited (3600 - 54 = 3546). Discount is a loss, since the payment is received after deducting it. Hence, it would also be debited. Discount = 3,600 X 6/100 X 3/12 = Rs. 54. B/R has gone out, so it would be credited.

AI explanation

When a bill receivable is discounted with a bank before maturity, the business receives cash (net of the discount charge) and gives up the future right to collect the bill's face value. The discount here is Rs. 3,600 × 6% × 3/12 = Rs. 54, so cash received is Rs. 3,600 − 54 = Rs. 3,546. The correct entry therefore debits Cash for 3,546 and Discount (an expense) for 54, crediting the Bills Receivable account for its full face value of 3,600 to remove it from the books.

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