Question

E's Trial Balance contains the following information: Discount received Rs. 1,000. Provision for discount on creditors Rs. 1,600. It is desired to maintain a provision for discount on creditors at Rs. 1,100. The amount to be credited to the Profit & Loss Account is:

• A. Rs. 1,500
• B. Rs. 3,500
• C. Rs. 1,000
• D. Rs. 500

Answer 1

The correct option is D Rs. 500

Discount received is the amount received from the creditors for early payments. It is an indirect income for the business and is credited to the profit and loss account. Provision for discount on creditors is the estimated amount of creditors which is not to be paid. It is a saving and an income and is so credited to the profit and loss account.

Discount received Rs.1000 will be adjusted from the provision available. Provision left would be 1600 - 1000 = 600. New provision to be made is Rs. 1100. so, 500 will be credited to the profit & loss account to make it 1100.