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Questions and Answers
Which of the following scenarios best illustrates the primary purpose of offering a trade discount?
Which of the following scenarios best illustrates the primary purpose of offering a trade discount?
A company offers both trade and cash discounts. How are these discounts accounted for differently in journal entries?
A company offers both trade and cash discounts. How are these discounts accounted for differently in journal entries?
A business purchases goods worth ₹50,000 with a 15% trade discount. What will be the journal entry to record this transaction?
A business purchases goods worth ₹50,000 with a 15% trade discount. What will be the journal entry to record this transaction?
A company sells goods to a customer for ₹80,000 with a 5% cash discount if paid within 10 days. If the customer pays within the stipulated time, what journal entries will the seller make?
A company sells goods to a customer for ₹80,000 with a 5% cash discount if paid within 10 days. If the customer pays within the stipulated time, what journal entries will the seller make?
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Which account is credited to record the benefit of a cash discount when a business purchases goods?
Which account is credited to record the benefit of a cash discount when a business purchases goods?
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A business sells goods to a client for ₹120,000 with a 10% trade discount and a 5% cash discount. If the client pays immediately, what amount of cash does the business receive?
A business sells goods to a client for ₹120,000 with a 10% trade discount and a 5% cash discount. If the client pays immediately, what amount of cash does the business receive?
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How does offering a cash discount impact a seller's accounts receivable?
How does offering a cash discount impact a seller's accounts receivable?
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What is the primary difference between a trade discount and a cash discount in terms of their impact on the final price paid by a customer?
What is the primary difference between a trade discount and a cash discount in terms of their impact on the final price paid by a customer?
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Flashcards
Discount
Discount
A reduction in the price of goods or services.
Trade Discount
Trade Discount
A discount given on MRP to increase sales, deducted directly from the purchase amount.
Cash Discount
Cash Discount
A discount given mainly for cash transactions to avoid bad debts.
Journal Entry for Trade Discount
Journal Entry for Trade Discount
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Journal Entry for Cash Discount
Journal Entry for Cash Discount
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Calculation for Trade Discount
Calculation for Trade Discount
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Calculation for Cash Discount
Calculation for Cash Discount
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Discount Impact on Journal Entries
Discount Impact on Journal Entries
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Study Notes
General Entries: Discount
- Discount: A reduction in the price of goods or services.
- Two types of discounts:
- Trade discount
- Given on MRP (Maximum Retail Price) or List Price to increase sales.
- Offered to every customer.
- Directly deducted from the purchase amount.
- Cash discount
- Given to avoid bad debts or credit sales.
- Only offered if the transaction is in cash.
- Not available for transactions on credit.
- Deducted separately in journal entries.
- Trade discount
Purchases and Discounts
- Trade discount:
- Deducted directly from the amount in the journal entry.
- It doesn't appear as a separate entry.
- Example: If you buy goods worth ₹10,000 with a 10% trade discount, you'll pay ₹9,000 and the journal entry will only reflect the ₹9,000.
- Journal Entry: Purchases account debit To the supplier's account.
- Cash discount:
- Deducted separately in the journal entry and labeled as Discount Received.
- Journal Entry: Purchases account debit To Cash Account To Discount Received Account.
- Example: You buy goods worth ₹20,000 at 10% trade discount and 10% cash discount.
- Calculations:
- Trade discount: 10% of ₹20,000 = ₹2,000, Amount remaining: ₹18,000
- Cash discount: 10% of ₹18,000 = ₹1,800, Final amount paid: ₹16,200
- Journal Entry: Purchases account debit (₹18,000) To Cash Account (₹16,200) To Discount Received (₹1,800).
- Calculations:
- Key Points:
- If you buy goods and receive a discount, it is considered a benefit, so it is credited.
- All expenses and losses are debited.
Homework
- Sales:
- Trade discount is deducted directly from the amount.
- Cash discount is shown separately with a label "Discount Allowed."
- Journal Entries:
- Seller's account debit To Purchases account
- Seller's account debit To Cash account To Discount Allowed.
- Transactions:
- Goods sold to Neelam for ₹100,000.
- Goods sold to Neelam for ₹100,000 with a 10% trade discount.
- Goods sold to Neelam for ₹100,000 with a 10% cash discount.
- Goods sold to Neelam for ₹100,000 with a 10% trade discount and 5% cash discount.
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Description
Learn about trade and cash discounts. Trade discounts are given on the MRP to increase sales and are deducted directly. Cash discounts are given to avoid bad debts and are only offered if the transaction is in cash.
