Question

What would be journal entry.if goods purchased fot cadh rs. 50000@5% trade discount?

Answer 1

Trade discount is not recorded in the books of accounts..it is deducted from the) List price of that product at the time of Purchase itself.. That net amount is considered to be the historical price of that product and is recorded in the books of accounts.

Given List price = 50000

Trade discount=5%@50000=2500

Purchase price= 50000-2500 = 47500

Also given that Goods are Purchased on cash . ....

So the current transaction affects two accounts..

Purchases (nominal) account (all expenses losses Gains income come under nominal account) and cash (Real) account...(All assets and Liabilities come under Real account)

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

As Per above rules
since Purchases is an expense so should be debited,cash is Going out so should be credited..

So the Journal Entry will be.

Purchases a/c Dr 47500

To cash a/c. 47500

(Being Goods Purchased for cash)