CBSE Class 11-commerce Answered

The above stated statement is not a rule but a logic derived as follows:

a) Cash Receipts lead to increase in cash balance and as per the rule increase in assets is debited.

b) Cash Payments lead to decrease in cash balance and as per the rule decrease in assets is credited.

 

Now for Cash Discount Allowed or Received is related to the cash payments to encourage early payment. Cash Discount allowed is debited to discount allowed account by the party receiving the amount and cash discount receieved is credited to discount received account by the party making the payment. So, if cash is being received, i.e. payment being received, discount allowed is associated which is an expense and increase in expense is debited. Similarly, discount received is associated to cash payments which is treated as a reveneue for the business and increase in revenue is credited.