Question

Bought goods from imran 1500 subject to trade discount @20%

Answer 1

Purchase a/c... Dr,,, 300


........To cash a/c.......... 300


[ being goods purchase on trade discount 20%]


Working note - - 300*20/100

=300

Trade discount is not shown in the books of accounts...

Answer 2

Trade Discount is not shown in the books of accounts..so it should be deducted at the time of Purchase and that net price sgoube considered as the historical price of that product...

so 1500 Less 20% = 1200

The current transaction affects two accounts.. Purchases account(Goods are purchased), Cash account..(purchased for cash)..

Purchases account is a nominal account ( All expenses incomes gains losses come under nominal account; Purchases is an expense)

Cash account is a real account ( all assets and Liabilities come under Real account: cash is an asset)


The Three golden rules of accounting are..

Personal account - Debit the receiver, credit the giver

Nominal account - Debit All expenses and losses, credit All incomes and gains

Real account - Debit what comes in, credit what goes out

In contention with the above rules..

Purchases account should be debited (its an expense)

Cash account should be credited (cash is going out)


so the Journal Entry will be...

Purchases account Dr 1200

To Cash account 1200

(Being Goods purchased for cash)