Question

Brought goods from nayak bros. For rs400000 at 10% trade discount and 3% cash discount 25% of the amount paid at the time of purchase and also cut 6% cgst and 6%sgst write its journal entry and explain it briefly

Answer 1

Explanation:

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