Question

Sold goods worth 80,000 to anjum for cash at a profit of 25%.He was allowed 10% trade discount and 5% cash discount

Answer 1

Trade Discount is not recorded in the books of accounts unlike cash discount..It is deducted from the List price of that product at the time of Purchase itself and the net price is considered to be the historical price of that product....But Cash Discount unlike Trade discount is recorded in the books of accounts....

Given "Sold goods worth 80,000 to anjum for cash at a profit of 25%.He was allowed 10% trade discount and 5% cash discount"


Sold Goods worth 80000..so Cost Price= 80000
Rate of profit = 25%
Then Profit = 80000×25% = 20000
Selling Price= Cost Price + Profit = 80000+20000=100000(It is more over like a List price)


Trade Discount rate =10%

Trade Discount= 100000×10% = 10000

Selling Price (net price) = List price - Trade Discount
= 100000 - 10000
=90000


Cash Discount rate =5%
Cash Discount= 90000×5%=4500

.. The current transaction affects 3 accounts...
Sales a/c (We Sold the Goods)... Discount allowed a/c(Discount is allowed to the customer),cash a/c(cash is received)

Sales a/c and discount allowed a/c are nominal accounts (all the expenses incomes gains losses come under Nominal account) and cash account
is a real account (all assets and Liabilities come under Real accounts)

The Three golden rules of accounting are

Personal account - Debit the receiver credit, the giver

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

Nominal account - Debit All expenses and losses, credit all incomes and Gains

As Per the above rules..since Sales is an income to us it should credited and Discount allowed is an expense..hence should be debited....

Cash is incoming,so it should be debited...


The Journal Entry will be...


Cash a/c Dr 85500

Discount allowed a/c Dr 4500

To Sales a/c 90000

(Being Goods Sold)