What is Purchase Discount

Purchase Discount is the concession on the purchased price of goods given by the seller to the buyer when he makes payment before due date. It is a Purchase Discount and Direct Revenue for the buyer while it is a Sales Discount which is a Direct Expense for the Seller. It is also known as Purchase Discount Contra Expense Account.

Purchase Discount Journal Entry

For a buyer i.e. a company (XYZ) which purchases the goods Worth Rs. 50000 from supplier (ABC Company) for reselling purposes (Assuming 2% Discount was given):

                                                 ABC Company        1000

 

                                                                          Purchase Discount a/c     1000

(2% Purchase Discount On Goods Recorded)

For a seller, it is a Sales Discount and here Company ABC is giving the discount:

                                                Sales Discount a/c   1000

                                                                          XYZ Company   1000

(Sales Discount of 2% is Given)

Is Purchase Discount An Asset

No, it is a contra expense account which is deducted from Gross Purchases in the Income Statement.