Example of Decrease Liability Income

Example of Decrease Liability Income

According to income definition the decrease in liability that would result in increase in equity of the entity would be treated as income. The following example would explain this concept

ABC Company made a purchase of $ 200 and amount is payable after six month .After two months  supplier offered a discount of 2% on early payment.

Solution

The amount of discount $ 4 is income for the organization because it would decrease the liability by $ 4 and now organization has to pay $ 196 instead of $ 200. This $ 4 would increase the profit and ultimately increase the equity.

Journal Entry

Date	Particulars	Dr	Cr
	Supplier A/C	4
	Discount A/C		4