journal entry
Sold goods to Ram Rs. 2,00,000 at a trade discount of 20% and cash discount of 3%. Only 60% amount received in cash.
Answers
Calculation of Trade discount :-
Price of goods = Rs. 2,00,000
Trade discount = 20% of Rs. 2,00,000
Trade discount = 20/100 × Rs. 2,00,000
Trade discount = Rs. 40,000
New price = Price - Trade discount
New price = Rs. 2,00,000 - Rs. 40,000
New price = Rs. 1,60,000
Calculation of cash discount :-
[ Cash discount is only allowed in cash payment ]
Given that only 60% amount is received in cash .
Cash discount is allowed on = 60% of Rs. 1,60,000
Cash discount is allowed on = 60/100 × Rs. 1,60,000
Cash discount is allowed on = 6 × Rs. 16,000
Cash discount is allowed on = Rs. 96,000
Cash discount= 3% of Rs. 96,000
Cash discount = 3/100 × Rs. 96,000
Cash discount = 3 × Rs. 960
Cash discount = Rs. 2,880
Cash received from Ram = Rs. 96,000 - 2,880
Cash received from Ram = Rs. 93,120
Cash receivable from Ram = 1,60,000 - 96,000
Cash receivable from Ram = 64,000
Required Journal entry is,
Ram . . . Dr - 64,000
Cash A/c . . . Dr - 93,120
Discount allowed A/c . . . Dr - 2,880
- To sales A/c - 1,60,000
( Being goods sold to Ram and discount allowed )
Note : Cash discount is to be calculated after trade discount. Trade discount is deducted from the amount of goods but is not supposed to be shown in books on accounts.
We mention only cash discount in books.