Recording settlement of debtor's account with cash discount allowed

Steps:

• Identify amount owed: Peter owes John $200.
• Calculate discount: 5% of $200 =$10.
• Determine payment: Net amount paid by cheque = $190.
• Record in John's books: Debit Bank for cash received ($190); Credit Peter's account for full settlement ($200).

Why A is correct:

• As seller, John debits Bank for net receipt per double-entry principle (assets increase) and credits Debtor for gross amount to close the account, with discount allowed absorbing the $10 difference.

Why the others are wrong:

• B: Discounts bank receipt and fails to record full debtor settlement; discount allowed is a separate debit.
• C: Applies to buyer's perspective (discount received credited); John is seller.
• D: Debiting Peter increases the debtor balance, opposite of settlement.

Final answer: A