Discount received
In one sentenceA discount the supplier gives the business for paying before the agreed date, so it pays less than the invoice value and the difference is recorded in its favor.
Simply put
Some suppliers write a term such as “2% discount if paid within 10 days.” If you take it, you pay less, and the difference is called a discount received because you earned it by paying early.
Always compare the value of the discount with the cost of freeing up cash early: a small discount for a short period can have a very high annual return.
Worked example
A pharmacy has an invoice of 20,000 SAR from a medicine supplier, with a 2% discount for payment within 10 days, and it paid on the eighth day (amounts before VAT for simplicity).
Discount: 20,000 × 2%400 SAR
Dr: Supplier (debit)20,000
Cr: Bank (credit): 20,000 − 40019,600
Cr: Discount received (credit)400
What the pharmacy saved by paying early400 SAR
Don't confuse it with
Trade discountA trade discount is deducted from the list price on the invoice itself and is not recorded separately in the books, while a discount received is tied to the payment date.