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Anita Mills sold goods of list price Rs 50,000 to Bharat Traders on credit, allowing 10% trade discount. Bharat Traders paid Rs 44,100 in full settlement within the discount period, and Anita Mills allowed a cash discount for the balance. The journal entry for the receipt in Anita Mills' books is:

Debit Cash Rs 44,100 and Discount Allowed Rs 900, crediting Bharat Traders Rs 45,000. Trade discount of Rs 5,000 is deducted before recording the sale, so the debtor owes Rs 45,000. The shortfall of Rs 900 is cash discount, an expense for the seller.

  1. ACash A/c Dr. 44,100 Discount Allowed A/c Dr. 900 To Bharat Traders 45,000Correct
  2. BCash A/c Dr. 44,100 Discount Allowed A/c Dr. 5,900 To Bharat Traders 50,000
  3. CCash A/c Dr. 44,100 To Bharat Traders 44,100
  4. DCash A/c Dr. 45,000 To Bharat Traders 44,100 To Discount Received A/c 900

Explanation

Trade discount is deducted at the time of sale: 50,000 less 10% = 45,000, which is the amount due from Bharat Traders. Cash received 44,100 leaves 900 as cash discount, which is a loss (Discount Allowed) debited. Option B wrongly records trade discount as a journal item at 50,000. Option D misstates cash and uses Discount Received.

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