Question

Bought goods from Kamal for Rs.20,000 at a trade discount of 10% and Cash discount of 2%. Paid 60% amount immediately.

Answer 1

Hello!!

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Purchase A/c. Dr. 18000
To cash a/c. 10800
To Kamal a/c. 360
To discount receive a/c. 6,840

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since, Goods are being purchased, Purchase A/c. will be debited , because as we know goods is an assets and increase in assets results Debits.

Cash is being paid, (cash is an assets), which is decreasing and we know that, decrease in asset leads to Credit.

Kamal a/c. will be credited because kamal is a liability for us. since, we know that increase in liability leads to credit.

Since, we are receiving discount, which is income and we know that, Increase in income leads to credit.

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Answer 2

Trade Discount is not recorded in the books of accounts..it is deducted from the List price of that product and the net amount is considered to be the historical price of that product unlike cash discount...

So the Purchase price will be

20000 - 10%(Trade Discount) = 18000

Cash Discount will be 2% @18000(not 20000)
=360

Cash paid immediately is 60% of Purchase price = 18000@60% =10800

So the remaining amount will be a liability to us , where kamal becomes creditor to us..

remaining amount = 18000 - 10800 - 360 =6840




As Per the golden rules of accounting:-


Personal account - Debit the receiver credit the giver

Real account - Debit what comes in credit what goes out

Nominal account -Debit All expenses and losses, credit all incomes and Gains

Kamal being our creditor/Personal account hould be credited.. because he is at the recieving end

Cash a/c being a Real account should be credited because it is outgoing/decreasing..

Cash Discount being a nominal account should be credited because it is an income..

Purchases being a nominal account should be debited because It is an expense

So the Journal Entry will be

Purchases a/c Dr 18000

To Discount recieved a/c 360

To Cash a/c 10800

To Kamal a/c. 6840

(Being Goods Purchased from kamal)