Reversing cash discount on dishonoured cheque

Steps:

• Determine original sale: $475 is 95$475 / 0.95 = $500
• Reinstate full receivable: Debit Josh $500
• Reverse bank deposit: Credit Bank $475
• Reverse discount allowance: Credit Discount Allowed $25 (balancing entry)

Why D is correct:

• Follows double-entry principle for dishonour: Debit debtor full original amount, credit bank for cheque value, credit discount allowed for 5% ($25) to reverse expense recognition.

Why the others are wrong:

• A: "Discount received" is income for payer, not expense for seller allowing discount.
• B: Misplaces accounts and uses "discount received," inverting seller's perspective.
• C: Debits Bank, incorrectly reducing cash instead of reversing receipt.

Final answer: D