Explanation:

Discount received can be defined as the reduction in price of goods and services to the buyer from the seller or the manufacturer. It is treated as an income for the buyer and hence it is credited to discount received and debited to the personal account of the supplier. Both discounts allowed and received are classified under nominal accounts.

There are two types of discounts received by the buyer; trade discount and cash discount.

• Generally, trade discount is given on bulk purchases at the period when sales happened. Hence, the Purchase amount is recorded in the books after deducting trade discount.
• A cash discount is received as an inducement for prompt payment. It appears as an income in the Profit and loss account or income statement. At first, the amount of purchases are shown in full. Then, the amount of discount is deducted from the payables.