Which of the following entries is correct in respect of reserve for discounts on accounts payable?
ADebit Accounts Payable A/c and Credit P&L A/c
BDebit Reserve for Discount on Accounts Payable A/c and Credit P&L A/c
CDebit P&L A/c and Credit Reserve for Discount on Accounts Payable A/c
DDebit Reserve for Discount on Accounts Payable A/c and credit Accounts Payable A/c
Correct answer
B. Debit Reserve for Discount on Accounts Payable A/c and Credit P&L A/c
Explanation
The entry will be as follows: Reserve for Discount on Creditors A/c……………………………………………… Dr. To Profit & Loss A/c It will be shown on the credit side as a separate item and will be shown on the Liabilities side by way of deduction from the Sundry Creditors.