Journal Entry for Full Payment Received at a Discount

When a business receives full payment from a customer at a discount, it needs to record the transaction in its books of accounts. The journal entry for the same is as follows:

Debit: Cash/Bank account (the amount received)
Credit: Discount Allowed account (the amount of discount)
Credit: Accounts Receivable account (the original amount owed by the customer)

Explanation:

The above journal entry records the transaction of full payment received from the customer, Sumit. The debit entry is made to the cash/bank account as the business has received the payment. The credit entry is made to the discount allowed account as the business has given a discount of 5% to the customer. The credit entry is also made to the accounts receivable account as the original amount owed by the customer has been settled.

Impact on Financial Statements:

The above transaction impacts the financial statements of the business in the following way:

Income Statement: The discount allowed will reduce the revenue of the business.

Balance Sheet: The cash/bank account will increase, the discount allowed will decrease the profit of the business, and the accounts receivable account will decrease.

Conclusion:

Recording the journal entry correctly is essential to ensure accurate financial reporting. In this case, the business has received full payment from the customer Sumit with a discount of 5%. The journal entry records the transaction in the books of accounts, and it impacts the income statement and the balance sheet of the business.