Question

Fair bought goods at list price $4500 on 24 November 2019

Adil is offered a trade discount of 20% and a cash discount of 15 % if paid within 10 days

Adil had made payment at 02 December 2019

Make all journal entries.

Answer 1

For journal entry, please refer the image.

Explanation:

First of all, the discount allowed on the list price of the goods, i.e. 20% of $ 4,500 = $ 900, is a trade discount, which is not going to be recorded in the books of accounts. Next, the discount received by Fair of $ 540 for making quick payment is a cash discount, as it is allowed on the invoice price of the goods. Cash discount is entered in the books of accounts. Therefore the journal entry in the books of Fair to be passed is given in the image.

Credit Debit $ 3,600 $ 3,600 Journal entries in the books of Fair Date Particulars 24-Nov-19 Purchase A/C Dr To Adil / Accounts Payable A/C (Being goods bought at list price less 20% trade discount ($4,500 - (20% of $4,500) = $ 3,600]) 02-Dec-19 Adil / Accounts Payable A/C Dr To Cash A/C To Discount Received A/C (Being amount paid to Adil for the goods purchased within 10 days after 15% Discount on $3,600) $ 3,600 $ $ 3,060 540 Please do not forget to like the answer if you find it useful. Thank you