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CMA Intermediate · Financial Accounting · Final Accounts of Commercial Organisations

At the close of the financial year, which of the following is the correct closing entry for Discount Received Account having a credit balance of ₹2,500 in a trading firm?

Discount Received is an income with a credit balance, so it is closed by debiting Discount Received Account and crediting the Profit and Loss Account. This transfers the income to the profit computation and leaves the nominal account at nil.

  1. ADebit Discount Received Account and credit Profit and Loss AccountCorrect
  2. BDebit Profit and Loss Account and credit Discount Received Account
  3. CDebit Discount Received Account and credit Trading Account
  4. DDebit Discount Received Account and credit Capital Account

Explanation

Discount Received is a nominal account of income with a credit balance. To close it, debit the account itself to bring it to nil and credit the Profit and Loss Account, where it is shown as income. It is not a part of gross profit, so the Trading Account is not used.

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