purchased goods from Sharma having listed price of₹20,000 trade discount allowed 10%
Answers
Answer:
Purchased goods from Mr.Raj worth ₹20,000 at 10% trade discount & 5% cash discount.
What is Trade Discount ?
In simple words, it is discount on the retail price of a commodity which is agreed between traders or is given by a wholesaler to a retailer.
It is not recorded in books of accounts.
What is Cash Discount ?
Cash discount is allowed to the customer for immediate (on the spot) cash payment. The discount is allowed by the seller to the customer to receive prompt payment and to avoid delayed payments.
Cash discount is allowed only on the amount of cash being paid.
Cash discount is recorded in the books of accounts.
Trade discount will be ₹20,000 × 10% = ₹2000. This amount (₹2000) will be deducted from total purchase price i.e. ₹20,000 - ₹2000 = ₹18000
Cash discount is calculated on the cash amount paid i.e. after deducting trade discount from purchase price (20,000 - 2000). The cash paid is ₹18,000 and cash discount is ₹18,000 × 5% = ₹900
Journal entry is as follows :
Purchase a/c………….dr ₹18,000
To Cash a/c ₹17,100
To discount received a/c ₹900
Purchase is nominal a/c and expense so Debited
Cash is real a/c and goes out of business so Credited
Discount received is nominal a/c and gain so Credited
(Remember, trade discount is not recorded in books of accounts. Only cash discount is recorded in the books of accounts)
Answer:
purchased goods from Sharma having listed price of 20000 trade discount allowed 10persent