It is a normal practice in the business to allow cash discount to those debtors from whom the payment is received promptly or within a fixed period. Discount thus, allowed will be an expenses of the business and is therefore, debited to the Profit & Loss Account. Since there will be certain debtors who will make early payment in the next accounting year and will be allowed such discount, a provision for such discount is created in the current year itself. The process of creating a provision for discount is the same as for the provision for doubtful debts. The following entry will be passed for this purpose:
Profit & Loss A/c Dr.
To Provision for Discount on Debtors A/c
Treatment in Final Accounts : Such provision is shown on the debit side of the Profit & Loss account and is also deducted from Sundry Debtors on the Assets. side of the Balance Sheet.
If should be noted that, discount willbe allowed only to those debtors who will make prompt payment. As such, the provision for discount is calculated on good debtors left after deducting further bad debts given in adjustments and the provision for doubtful debts required to be made at the end of year.

Generally, some of the businessman's money remains unpaid by his customers It is that all the customers are not dishonest, but nobody knows of the future. A customer may become bankrupt, may become dishonest or may even die. His estates may not be able to pay the businessman's debt. The amount not recovered is called Bad Debt. It is shown on the debit side of the Profit and Loss A/c. At the end of the year before closing the books of accounts the trader maintains a Reserve for Bad Debts on his Debtor Below the Trial Balance it is given that % Reserve be maintained on Debto This amount of Reserve is added in the amount of Bad Debts and shown on the debit side of the P & L A/c and deducted from the amount of Sundry Debtor Bad Debt is written in the Trial Balance and shown only once i.e.,in the P & L A/c but the Reserve is given in the adjustments, it is shown at two places, in the P & L A/c and in the Balance Sheet.
It is not necessary that the whole of the Reserve is utilised in writing off the Bad Debts. The amount thus, unutilised from the Reserve for Bad Debts is carried forward to the next year. It shows a credit balance. So, it is shown as Old Reserve on the credit side of the P & L A/c.

(i) Outstanding Expenses: This term refers to those expenses which have become due in the accounting period for which the final accounts have been prepared but have not yet been paid. As they are the expenses of the current year, so they must be debited and charged from the profit and loss account of the current year. The expenses remained paid so far during the current year, so they are the liability of the firm
(ii) Prepaid Expenses: There are, several expenses that are usually paid in advance, e.g., fire insurance, telephone charges etc., and at the time at balancing it is found that the whole of the period covered by the amount already .spent has not yet expired. The proposition of the amount paid which relates to the next period is, therefore, to be carried forward to the next year. These expenses are deducted in the Profit and Loss Nc and shown as Assets in the Balance Sheet. For example, a trader spent 4,000 on advertisement for two yea 2,000 will be prepaid expenses. Following Journal entry will be passed.

(iii) Income Received in Advance : Sometimes the businessman receives some amount in advance which is more than what he should have received in the current year for a particular item. Such an amount is a liability for him. For example, Rajender Gupta, has to receive 1,200 as Rent during the year from his tenant, but the tenant paid 1,500, 300 has been in advance which is concerned with the next year. Thus, in the P & L A/c it will be shown as Rent received in advance on credit side and in the Balance Sheet it will be shown as Liability. Its adjustments will be as follows :

(iv) Accrued Income: Sometimes it so happens that a trader earns an income but does not receive it up to the time of preparation of Final Accounts. Such an income is called income earned but not received or Accrued Income. For example, the trader receives an annual rent of 3,000 on his building but up to the time of preparation of Final Accounts he has received only 2,500.He is still entitled to receive 500 more. An adjustment is necessary for this amount before the Final Accounts are prepared otherwise the net profit will be reduced by 500. This amount is shown on the credit side of P & L A/c and on the Assets side of the Balance Sheet. Its Journal entry will be as follows:

Accrued Income : The income which has become due but not yet received in cash is called accrued income. It is also called outstanding income or income earned but not yet received. Accrued income is shown in the assets side of balance sheet For example : interest on investment has become due but not yet received.
For accrued income following adjustment entry is passed:
Accrued Income A/c         Dr.
     To Income A/c
(Being accrued income recorded)

Expenses due but not paid are called unpaid or outstanding expenses. Expenses have become due means the benefit has been derived and therefore, all such expenses must be brought into books of accounts. Following adjustment entry should be passed for adjustment of outstanding expenses: Expenses A/c                           Dr.
To Outstanding Expenses A/c
(Being outstanding expenses recorded) 

Working Notes:
(i) Interest on Investment=\(23,000\times\frac{5}{100}=1,115\)
(ii) Depreciation of Machinery \(\frac{20,000\times5}{100}=1,000\)
(iii) Debtors             50,000
(-) further bad debts   1,500
                              48,500
(-) Provision (6%)       2,910
                              45,590
(-) Discount (15%)      2,280
                               43,310

They will be treated in final accounts as :
(i) Sale proceeds of goods: It is a revenue receipt and credited to Trading A/c. Sales of goods is normal and regular feature.
(ii) Commencement of business with Rs 60,000 : It is a capital receipt and shown at the liabilities side of the Balance Sheet.
(iii) Rent received from premises sublet: It is a revenue receipt because it is a regular income. It will be posted at the credit side of Profit & Loss A/c.
(iv) Profit on sale of building: It is capital receipt and posted at the credit side of Profit and Loss A/c. It should not be treated as operating income.
(v) Sale proceeds of assets: Amount received from the sale of an asset is a capital receipt. Excess of amount received over the book value of assets is revenue receipt. Loss on sale of assets is treated as revenue loss.
(vi) Sale proceeds from scraps : It is revenue receipts and posted at the credit side of Profit & Loss A/c because its amount is very nominal and it is a routine affair.