Rebate on Bills Discounted

Rebate on Bills Discounted is also known as Discount Received in Advance, or, Unexpired Discount or, Discount Received but not earned.

Its treatment is same as we do in the case of Interest Received in Advance.

Thus:

(i) If it is given only in the Trial Balance:

The same will be shown as a liability and will appear in the liability side of the Balance Sheet.

(ii) If it is given in adjustment:

In that case, the same is deducted from the Income from Interest and Discount in Profit and Loss Account and the same also will appear in the liability side of the Balance Sheet.

Method of Computation of Rebate on Bills Discounted:

For example, a customer discounts a bill of Rs. 60,000 for 3 months at 12% on 1st March 2000, it will be calculated as under:

Bank will earn discount @ 12% for 92 days i.e., = Rs. 60,000 x 12/100 x 92/365 = Rs. 1814.

But this amount of discount is meant for March, April and May. As accounts are prepared on 31st March each year, discount received for 61 days (30 + 31) for April and May is not actually earned. Thus, discount of 61 days i.e., Rs. 601 is called Rebate on Bill Discounted. So, actual income is Rs. 1213/- (i.e., 1814 – Rs. 601).

Treatment in Profit and Loss Account and Balance Sheet:

(i) Discount earned (up to 31.12.1992) will be credited to P & L A/c and unexpired discount will, however, be credited to Rebate on Bills Discounted A/c, and will appear in the liability side of the Balance Sheet.

(ii) Commissions earned will be credited to P & L A/c whereas customers’ liability for acceptance will appear on the asset side of the Balance Sheet and Acceptance on behalf of customer will appear in the liability side as contra items, and

(iii) Loans and advances will appear in the assets side of the Balance Sheet.