VCE Accounting Unit 3. Video of this presentation can be found on my YouTube channel here https://www.youtube.com/channel/UCf5jyuJoYwie8tWfvjEc0zg.

1. 5.8
DISCOUNT EXPENSES

2. Video of this presentation at…
YouTube Channel for VCE Accounting

3. © Michael Allison. Author’s permission required for external use.
 A discount expense means the business gives a debtor a discount to
settle their account
5.8 DISCOUNT EXPENSES
Business
Customers
$200
$195
Discount
Expense
$5
Why is the
discount
recorded as an
expense?

4. © Michael Allison. Author’s permission required for external use.
5.8 DISCOUNT EXPENSES
Expense definition:
Expenses are:
1. Outflows of economic benefits or reductions in inflows of economic
benefits
2. That will either:
•  Assets
• Liabilities
3. With the ultimate effect of:
•  Owner’s Equity

5. © Michael Allison. Author’s permission required for external use.
 E.g. a business paid $200 for wages
5.8 DISCOUNT EXPENSES
Wages expense
Characteristic
#1
• There is an outflow of
economic benefits
• Cash will be paid for
wages
Characteristic
#2
 Assets
(the Cash at Bank Asset)
Characteristic
#3
 Owner’s Equity
Wages [E]
31/1 Cash 200
Cash [A]
31/1 Cash 200
Wages [E]
31/1 Cash 200
Cash [A]
31/1 Cash 200 31/1 Wages 200

6. © Michael Allison. Author’s permission required for external use.
 E.g. a business gave a debtor a $5 discount off an account of $200
5.8 DISCOUNT EXPENSES
Inflows of economic benefits Inflows of economic benefits
With no discount With $5 discount
$200
$195
• Because of the discount,
the firm will receive less
cash (economic benefits)
• Hence, there will be a
reduction in inflows of
economic benefits

7. © Michael Allison. Author’s permission required for external use.
 E.g. a business gave a debtor a $5 discount off an account of $200
5.8 DISCOUNT EXPENSES
Characteristic
#1
Characteristic
#2
Characteristic
#3
Discount expense
• There is a reduction in
inflows of economic
benefits
• There is less cash being
received
 Assets
(the Debtors Asset)
 Owner’s Equity
Cash at Bank [A]
31/1 Cash 200
Debtors [A]
31/1 Cash 200
Cash at Bank [A]
31/1 Debtors 195
Debtors [A]
31/1 Cash 200 31/1 Cash/Disc 200
Discount Expense [E]
31/1 Cash 200
Discount Expense [E]
31/1 Debtors 5
Debit Credit
Assets  
Debit Credit
Assets  
Debit Credit
Expenses  
Debit Credit
Expenses  
Debit Credit
Assets  
Debit Credit
Assets  

8. © Michael Allison. Author’s permission required for external use.
 Comparison of wages expense versus discount expense
Wages expense Discount expense
Characteristic #1
• There is an outflow of
economic benefits
• Cash will be paid for wages
• There is a reduction in
inflows of economic benefits
• There is less cash being
received
Characteristic #2
 Assets
(the Cash at Bank Asset)
 Assets
(the Debtors Asset)
Characteristic #3  Owner’s Equity  Owner’s Equity
5.8 DISCOUNT EXPENSES

9. © Michael Allison. Author’s permission required for external use.
 This requires a new column to be added to the Cash Receipts
Journal
Discount Expense+ =Cash received
Total owed by
Debtor
5.8 DISCOUNT EXPENSES
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
20/1 P. Thompson 101 195 5 200
$5+ =$195 $200
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
20/1 P. Thompson 101 195 5 200
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
20/1 P. Thompson 101 195 5 200
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
20/1 P. Thompson 101 195 5 200
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
20/1 P. Thompson 101 195 5 200

10. © Michael Allison. Author’s permission required for external use.
 How to use the columns?
 Example 1: a debtor paid the firm $200 of its account
 Example 2: a debtor paid $190 off their account and was given a $10 discount
 Example 3: a debtor paid $170 off their account and was given a $30 discount
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
20 Jan P. Thompson 101
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
20 Jan P. Thompson 101 200
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
20 Jan P. Thompson 101 200 0
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
20 Jan P. Thompson 101 200 0 200
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
20 Jan P. Thompson 101
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
20 Jan P. Thompson 101
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
20 Jan P. Thompson 101 190
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
20 Jan P. Thompson 101 190 10
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
20 Jan P. Thompson 101 190 10 200
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
20 Jan P. Thompson 101 170
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
20 Jan P. Thompson 101 170 30
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
20 Jan P. Thompson 101 170 30 200
5.8 DISCOUNT EXPENSES

11. © Michael Allison. Author’s permission required for external use.
 At the end of the period, the discount expense column must be
“posted” to the General Ledger
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
17 Apr J. Major 901 900 80 980
29 Apr N. Newstead 902 450 50 500
30 Apr Totals 1350 130 1480
Discount Expense [E]
30/4 Debtors 130
Debtors [A]
30/4 Discount expense 130
30/4 Cash 1350
Cash [A]
30/4 Debtors 1350
or…
Debtors [A]
30/4 Cash/Discount
expense
1480
5.8 DISCOUNT EXPENSES
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
17 Apr J. Major 901 900 80 980
29 Apr N. Newstead 902 450 50 500
30 Apr Totals 1350 130 1480
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
17 Apr J. Major 901 900 80 980
29 Apr N. Newstead 902 450 50 500
30 Apr Totals 1350 130 1480
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
17 Apr J. Major 901 900 80 980
29 Apr N. Newstead 902 450 50 500
30 Apr Totals 1350 130 1480

12. © Michael Allison. Author’s permission required for external use.
 The Bank column must equal the total of all other columns (except
Cost of Sales) minus the Discount Expense column
Bank = Debtors
Control
Discount
Expense
Sales Sundries- + +
3650 = 1200 100 500 2000- + +
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
11 Mar Cash sales 78 550 200 500 50
19 Mar L. Law 79 1100 100 1200
29 Mar Capital 80 2000 2000
31 Mar Totals 3650 100 1200 200 500 2000 50
GST+
50+
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
11 Mar Cash sales 78 550 200 500 50
19 Mar L. Law 79 1100 100 1200
29 Mar Capital 80 2000 2000
31 Mar Totals 3650 100 1200 200 500 2000 50
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
11 Mar Cash sales 78 550 200 500 50
19 Mar L. Law 79 1100 100 1200
29 Mar Capital 80 2000 2000
31 Mar Totals 3650 100 1200 200 500 2000 50
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
11 Mar Cash sales 78 550 200 500 50
19 Mar L. Law 79 1100 100 1200
29 Mar Capital 80 2000 2000
31 Mar Totals 3650 100 1200 200 500 2000 50
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
11 Mar Cash sales 78 550 200 500 50
19 Mar L. Law 79 1100 100 1200
29 Mar Capital 80 2000 2000
31 Mar Totals 3650 100 1200 200 500 2000 50
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
11 Mar Cash sales 78 550 200 500 50
19 Mar L. Law 79 1100 100 1200
29 Mar Capital 80 2000 2000
31 Mar Totals 3650 100 1200 200 500 2000 50
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
11 Mar Cash sales 78 550 200 500 50
19 Mar L. Law 79 1100 100 1200
29 Mar Capital 80 2000 2000
31 Mar Totals 3650 100 1200 200 500 2000 50
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
11 Mar Cash sales 78 550 200 500 50
19 Mar L. Law 79 1100 100 1200
29 Mar Capital 80 2000 2000
31 Mar Totals 3650 100 1200 200 500 2000 50
5.8 DISCOUNT EXPENSES

13. © Michael Allison. Author’s permission required for external use.
 Summary of posting for the Cash Receipts Journal…
Dr Cr Dr
Cr
Cr Cr Cr
Cash Receipts Journal
Date Details Receipt
Number
Bank Discount
Expense
Debtors
Control
Cost of
Sales
Sales Sundries GST
30 Apr Totals 6440 200 2400 1700 3400 500 340
Dr
5.8 DISCOUNT EXPENSES

14. © Michael Allison. Author’s permission required for external use.
TASK
In-class Homework
SQ14 X