Sales discounts (if offered by sellers) reduce the amounts owed to the sellers of products, when the buyers pay within the stated discount periods.
To illustrate a sales discount let's assume that a manufacturer sells $900 of products and its credit terms are 1/10, n/30. This means that the buyer can satisfy the $900 obligation if it pays $891 ($900 minus $9 of sales discount) within 10 days. The alternative is for the buyer to pay $900 within 30 days. If the buyer pays within 10 days, the seller will record a debit to Cash for $891, a debit to Sales Discounts for $9, and a credit to Accounts Receivable for $900.
The account Sales Discounts is referred to as a contra revenue account. Hence, its debit balance will be one of the deductions from sales (gross sales) in order to report the amount of net sales.
