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CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Cycle

Nair Enterprises received Rs 19,500 from customer Sunil in full settlement of his account of Rs 20,000. Which entry is correct?

Debit Cash Rs 19,500 and Discount Allowed Rs 500, and credit Sunil Rs 20,000. The business gives up Rs 500 to a customer, which is discount allowed, a nominal loss, and the customer's account is cleared in full.

  1. ACash A/c Dr 19,500; Discount Allowed A/c Dr 500 to Sunil A/c 20,000Correct
  2. BCash A/c Dr 19,500; Discount Received A/c Dr 500 to Sunil A/c 20,000
  3. CCash A/c Dr 20,000 to Sunil A/c 19,500 and Discount Allowed A/c 500
  4. DSunil A/c Dr 20,000 to Cash A/c 19,500 and Discount Allowed A/c 500

Explanation

Cash received is 19,500 so Cash is debited. The 500 given up is discount allowed, an expense/loss, debited. Sunil's account is credited by the full 20,000. Discount Received is wrong because it applies to discounts earned from suppliers.

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