Register now or log in to join your professional community.
Accounts Payable 15000Dr
Discount rcvd 750Cr
Cash/Bank 14250Cr
1st: Purchase 10,000 RS. Goods trade discount 10%
=> The purchase will be recorded at the amount AFTER the trade discount substracted at the net amount of 9,000 RS. [10,000 x 10% = 1,000 (trade Discount)]
Periodic System
Entries: Purchase 9,000 RS (DR)
Accounts Payable 9,000 RS (CR)
Perpetual System
Entries: Inventory 9,000 RS (DR)
Accounts Payable 9,000 RS (CR)
2nd: Cash Discount 2% paid 60% immediately
=> Buyer is allowed to deduct 2% cash discount if the early payment of 60% paid immediately.
Periodic System
Entries: Accounts Payable (9,000 RS x 60%) 5,400 RS (DR)
Purchase Discount (5,400 RS x 2%) 108 RS (CR)
Purchase (5,400 - 108) 5,292 RS (CR)
Perpetual System
Entries: Accounts Payable (9,000 RS x 60%) 5,400 RS (DR)
Cash Discount (5,400 RS x 2%) 108 RS (CR)
Inventories (5,400 - 108) 5,292 RS (CR)
Trade discount is not shown separately in the books of accounts.
So the amount recorded in a purchase register should be net amount only. ie. 10,000/- minus 10% of 10,000/- = 9,000/-
Immediate payment due is 60% of 9,000/- = 5,400/-
On that 5,400/- cash disocunt 2% available = 108/-
So net cash payment will be 5,2,92/-
Entry is
Purchase 9000Dr
AP 9000Cr
AP 5400Dr
Discount rcvd 108Cr
Cash/Bank 5,292Cr
Rs.5280 need to pay immediately.
Rs.1200 will deduct from the original amount(10,000) and 60% of the net amount(8800) will be paid immediately.
The purchase will be recorded as follows.
1st
Purchase Debit RS. 10,000.
Trade Discount Credit RS. 1,000.
Payable to Vendor Credit RS. 9,000.
2nd Entry
Payable to Vendor Debit RS. 5,400.
Cash Discount Credit Rs. 108.
Bank Credit Rs. 5,292.
