Purchased goods worth RS 10000 at 20% trade discount and 2% cash discount
Answers
3 golden rules
• debit the receiver , credit the giver
• debit what comes in , credit what goes out
• debit all the expenses and losses , credit all the incomes and gains
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reason for debit and credit
Purchases A/c - nominal A/c , where is the expenses to the company therefore its debited
Cash A/c - Real A/c , here money goes out of the company , therefore its credited
Discount received A/c - Nominal a/c , where its gain to us because we are paying less than whats payable , therefore its credited
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Calculation of trade discount and cash discount
Trade discount = sales * 20%
= 10000*20%
=2000
Net bill amount = sales - trade discount
= 10000-2000
=8000
* Trade discount will be deducted from sales amount . no journal entry passed for trade discount
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cash discount = 8000* 2%
= 160
net bill amount payable = 8000- 160
=7840
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Journal entry
Purchases A/c Dr 8000
To discount Received A/c 160
To cash A/c 7840
(being goods purchased )