Paid to ram by cheque RS.980 in full settlement of their account Rs.1000
Answers
Answer:
Ram A/C Dr 1000
To Bank A/C 980
To Discount A/C 20
Explanation:
Ram is currently our Creditor for ₹ 1000 which means i have purchased from Ram on credit for which i have to pay 1000.
Ram A/C is being debited. We can think of this debit from 2 aspects.. One is that Ram A/C is a personal A/C and for personal A/C we debit the receiver and the other aspect is that Ram was my creditor and it means it was our liability to pay to Ram ₹ 1000 and when we pay to Ram it means we are decreasing our liability and the rule is that increase in liability is credited and decrease in liability is debited..
Bank A/C is credited with ₹980 because we are paying only 980 to Ram which mean my bank balance will reduce only by ₹980.
Lastly Discount is credited.. Discount A/c is nominal A/C and rule of nominal A/C is that Debit all expenses and losses and Credit all incomes and gains.. Since i was obliged to pay to Ram ₹1000 but i am paying 980 in full settlement which mean Ram has forgone ₹20 and accordingly i have to pay only 980 and 20 being discount allowed by him.