The discount is allowed to those debtors who are ready to pay a huge amount in one shot. It is given in order to encourage them to repay the debt. The provision for discount on debtors is created n good debtors.
The amount of good debtors is calculated by deducting the amount of bad debts, further bad debts and new provision for doubtful debts. The required percentage of the good debtors is calculated and the provision for discount on debtors is deducted from the Debtors’ amount in the Assets side of a Balance Sheet. As it is a loss for the business, it is shown in the debit side of the profit and loss account.
