Discount Allowed vs. Discount Received

Attribute	Discount Allowed	Discount Received
Definition	The reduction in price given by a seller to a buyer as an incentive or reward for purchasing goods or services.	The reduction in price received by a buyer from a seller as an incentive or reward for purchasing goods or services.
Given By	Seller	Seller
Received By	Buyer	Buyer
Purpose	To encourage sales, build customer loyalty, or promote specific products or services.	To incentivize buyers, increase sales, or reward customer loyalty.
Amount	Determined by the seller based on various factors such as negotiation, volume of purchase, or promotional campaigns.	Determined by the seller based on various factors such as negotiation, volume of purchase, or promotional campaigns.
Timing	Applied before the buyer pays for the goods or services.	Applied after the buyer pays for the goods or services.
Accounting Treatment	Recorded as a reduction in revenue or sales in the seller's books.	Recorded as a reduction in expenses or cost of goods sold in the buyer's books.

Introduction

Discounts play a significant role in the world of business, allowing companies to attract customers, increase sales, and build customer loyalty. Two common types of discounts used in business transactions are discount allowed and discount received. While both types involve a reduction in the price of goods or services, they differ in terms of who offers the discount and who receives it. In this article, we will explore the attributes of discount allowed and discount received, highlighting their key differences and how they impact businesses.

Discount Allowed

Discount allowed refers to a reduction in the selling price of goods or services offered by a business to its customers. This discount is typically provided by the seller as an incentive to encourage customers to make a purchase. It is often used as a marketing strategy to attract new customers, retain existing ones, or promote specific products or services. Discount allowed is usually expressed as a percentage of the original selling price, such as 10% off or 20% off, and is deducted from the total amount payable by the customer.

One of the key attributes of discount allowed is that it is under the control of the seller. The seller determines the amount and conditions of the discount, such as the duration of the promotion or any restrictions on its usage. This gives the seller the flexibility to adjust the discount based on various factors, such as market conditions, competition, or the customer's purchasing behavior. By offering discounts, businesses can stimulate demand, increase sales volume, and potentially gain a competitive advantage in the market.

Another attribute of discount allowed is its impact on the seller's financial statements. When a discount is given to a customer, it reduces the revenue generated from the sale. As a result, the seller's gross sales and net income are lower than they would have been without the discount. However, it is important to note that discount allowed is considered a normal business expense and is accounted for separately in the financial statements. It is typically classified as a deduction from revenue or as a contra-revenue account, which helps to accurately reflect the true sales figures and profitability of the business.

Furthermore, discount allowed can have both short-term and long-term effects on a business. In the short term, it may lead to a decrease in profit margins, especially if the discount is significant. However, if the discount helps to attract new customers or increase customer loyalty, it can result in higher sales volume and repeat business in the long run. Additionally, discount allowed can also be used strategically to clear excess inventory, promote slow-moving products, or encourage bulk purchases, thereby improving cash flow and reducing carrying costs.

Discount Received

Discount received, on the other hand, refers to a reduction in the purchase price of goods or services received by a business from its suppliers or vendors. Unlike discount allowed, which is offered by the seller, discount received is provided by the supplier as an incentive to the buyer. It is often given as a reward for prompt payment, bulk purchases, or long-term business relationships. Similar to discount allowed, discount received is usually expressed as a percentage and is deducted from the total amount payable by the buyer.

One of the key attributes of discount received is that it is beyond the control of the buyer. The supplier determines the amount and conditions of the discount, and the buyer has little influence over it. However, the buyer can negotiate with the supplier to obtain favorable terms, such as higher discounts or extended payment periods. Discount received can be a valuable tool for businesses to reduce their purchasing costs, improve profitability, and strengthen their relationships with suppliers.

Another attribute of discount received is its impact on the buyer's financial statements. When a discount is received from a supplier, it reduces the cost of goods sold or the expense associated with the purchase. As a result, the buyer's cost of goods sold and net income are lower than they would have been without the discount. Similar to discount allowed, discount received is considered a normal business expense and is accounted for separately in the financial statements. It is typically classified as a deduction from the cost of goods sold or as a contra-expense account, which helps to accurately reflect the true cost of goods and profitability of the business.

Furthermore, discount received can have various implications for a business. It can improve cash flow by reducing the amount payable to suppliers, especially if the discount is obtained for early payment. It can also enhance the buyer's competitiveness by allowing them to offer more competitive prices to their customers. Additionally, discount received can contribute to cost savings, increase profit margins, and provide opportunities for businesses to invest in other areas of their operations or expand their product offerings.

Conclusion

In conclusion, discount allowed and discount received are two distinct types of discounts used in business transactions. Discount allowed is offered by the seller to the customer as an incentive to make a purchase, while discount received is provided by the supplier to the buyer as a reward for prompt payment or other favorable terms. While both types of discounts involve a reduction in price, they differ in terms of who offers the discount and who receives it. Understanding the attributes of discount allowed and discount received is crucial for businesses to effectively utilize discounts as a strategic tool to attract customers, improve profitability, and build strong relationships with both customers and suppliers.