Question

Sold to Kanika & Co. goods costing 1,00,000 at 20% profit, allowing 10% trade discount and 5% cash discount. Kanika & Co. made 40% payment immediately by cheque




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Answer 1

Trade discount is not recorded in the book.

so the purchase will be

10000-10% (Trade discount) =9000

cash discount will be 2% *9000 (not 10000) =180

cash paid immediately is 60% of the purchase price= 9000*60%=5400

so the remaining amount will be a liability to us, where Kamal becomes creditor,

remaining amount=9000-5400-180=3420

as per the rules of accounting

personal credits-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

kamal being creditor/ personal account could be credited because it is outgoing/decreasing

cash discount being a nominal account should be credited because it is an income

purchases being a nominal account should be debited because it is an expense

so the journal will be,

purchases a/c Dr 9000

to discount recieved a/c 180

to cash a/c 5400

to kamal a/c. 3420

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