Question

(purchased goods worth Rs. 10000 less 20% trade discount and 5% cash discount and 25% at the time if purchase

Answer 1

Given" (purchased goods worth Rs. 10000 less 20% trade discount and 5% cash discount and 25% at the time if purchase"

This transaction affects four accounts.. Purchases account (Goods are Purchased) , creditor account (purchased on credit), Cash account (25% of the amount is paid in cash), cash Discount recieved (Discount being received)

Trade Discount is not recorded in the books of accounts unlike cash Discount..it is deducted from the List price and net price is considered to be the historical price of that product...

Trade Discount rate = 20%

List Price= 10000

Trade Discount amount = 10000 × 20% = 2000

Actual Price= List price - Trade Discount amount

= 10000 - 2000 = 8000

out of 8000.. 25%is paid out in cash and rest on credit... 8000 ×25% = 2000

cash Discount= 5%

Cash Discount amount= 2000 × 5% = 100

Actual cash receivable = 2000

But since cash Discount is recieved.. actual cash will be 2000-100 =1900


The Three golden rules of accounting are

Personal account - Debit the receiver credit the giver

Nominal account - Debit All expenses and losses credit All incomes and gains

Real Account - Debit what comes in ,credit what goes out

segregating accounts: -

Real accounts..all assets and Liabilities come under it

Nominal accounts...all incomes gains losses expenses come under it

Personal account..as the Name suggests..


Cash is Going out..it should be credited.

cash Discount recieved is a gain..it should be credited..

purchases is an expense it should be debited..

creditor is the giver..he should be credited..


So the Journal Entry will be.....

Purchases a/c Dr 8000

To Cash a/c 2900

To Discount recieved a/c 100

To creditor a/c 6000

(Being Goods Purchased on credit)