Liabilities

The debt or obligations of business which are payable during short or long time are called liabilities.

For example: Goods purchased on credit for Rs. 5000. The amount Rs. 5000 is payable in future is liability of the business.

Debtors/ Account Receivable

A person to whom goods are sold on credit is called debtor/Account Receivable.


For example: Aslam purchase a book from Asif on credit for Rs. 1000, For Aslam it is account receivable, and he is debtor.

Creditor/ Account Payable

A person from which goods are purchased on credit is called creditor/Account Payable.

For example: Aslam purchase a book from Asif on credit for Rs. 1000. For Aslam Rs. 1000 is account payable and he is known as creditor.

Discount Received

A discount which is received by the buyer or purchaser at the time of payment of credit purchase is called discount received.

For example: Aslam purchase a book from Asif on credit for Rs. 1000, on the condition that he will make payment after 2 month, Asif (seller) give chance to buyer if he make payment in one month then discount will be allowed at the rate 10%. Aslam make payment before one month.

Discount= 1,000 x 10/100 =100

Aslam will record Rs. 100 as discount receives and Rs. 900 for payment.

Discount Allowed

A discount which is given by the seller to the buyer at the time of receipts of credit sale is called discount allowed.

For example: Aslam purchase a book from Asif on credit for Rs. 1000, on the condition that he will make payment after 2 month, Asif (seller) give chance to buyer if he make payment in one month then discount will be allowed at the rate 10%. Aslam make payment before one month.

Discount= 1,000 x 10/100 =100

Asif will record Rs. 100 as discount allowed and Rs. 900 for payment.

Cash Discount

A discount which is allowed by seller to buyer at the time of payment of credit purchases is called cash discount.

For example: Aslam purchase a book from Asif on credit for Rs. 1000, on the condition that he will make payment after 2 month, Asif (seller) give chance to buyer if he make payment in one month then discount will be allowed at the rate 10%. Aslam make payment before one month.

Discount= 1,000 x 10/100 =100

Aslam will record Rs. 100 as discount receive and Rs. 900 for payment.

Types of Cash Discount

Ø  Discount Allowed

Ø  Discount Received

Trade Discount

A discount which is allowed by seller to buyer on list price (Written Price) of goods at the spot of selling is called trade discount. Trade discount is not recorded in accounting record.

For example: If the price of book is Rs. 100 and the seller allowed a discount at the rate 10% then the price of book will Rs. 90. So trade discount will not be recorded.

Discount= 100 x 10/100 =10   Price of Book = List Price – Discount = 100 -10 = 90