Cambridge IGCSE Accounting(0452)/O Level Principles of Accounts(7110) Notes: Source Documents: Three Column Cash Book: Discount Allowed Example
- We have already looked at Discount Allowed here
- Here we will look at a simple example in order to look at the entries you need to make
- We sold goods worth $500 to J Chimusoro on credit on 8 January
- On January 12 we sold goods worth 1000 on credit R Mabasa
- Chimusoro settles his account by making an RTGS deposit into our bank account on 3 February
- On 16 February R Mabasa made a $900 cash payment to settle her account
- What would be the entries in the books if:
- Our business does not have a cash discount policy in place
- Our business offers a Cash Discount of 10% if an account is settled within 3 months
Solution
a) Assuming that no other transactions took place without discount the following entries would be made in the books
| Sales(Debtor's) Ledger | ||||||||
| DR | J Chimusoro Account | CR | ||||||
| Date | Details | Amount($) | Date | Details | Amount($) | |||
| 8 Jan | Sales | 500 | 2 Feb | Bank | 500 | |||
| R Mabasa Account | ||||||||
| Date | Details | Amount($) | Date | Details | Amount($) | |||
| 12 Jan | Sales | 1000 | 16 Feb | Cash | 1000 | |||
| Cash Book | ||||||||
| DR | CR | |||||||
| Date | Details | Cash($) | Bank($) | Date | Details | Cash($) | Bank ($) | |
| 2 Feb | J Chimusoro | 500 | 31 Dec | Balance c/d | 1000 | 500 | ||
| 16 Feb | R Mabasa | 1000 | ||||||
1000 | 500 | 1000 | 500 |
|||||
b) With discount in a normal two column Cash Book the entries would be:
| Sales(Debtor's) Ledger | ||||||||
| DR | J Chimusoro Account | CR | ||||||
| Date | Details | Amount($) | Date | Details | Amount($) | |||
| 8 Jan | Sales | 500 | 2 Feb | Bank | 450 | |||
| 2 Feb | Discount | 50 | ||||||
500 | 500 | |||||||
| R Mabasa Account | ||||||||
| Date | Details | Amount($) | Date | Details | Amount($) | |||
| 12 Jan | Sales | 1000 | 16 Feb | Cash | 900 | |||
| 16 Feb | Discount | 100 | ||||||
1000 | 1000 | |||||||
| Cash Book | ||||||||
| DR | CR | |||||||
| Date | Details | Cash($) | Bank($) | Date | Details | Cash($) | Bank ($) | |
| 2 Feb | J Chimusoro | 450 | 31 Dec | Balance c/d | 900 | 450 | ||
| 16 Feb | R Mabasa | 900 | ||||||
900 | 450 | 900 | 450 |
|||||
| General Ledger | ||||||||
| Discount Allowed Account | ||||||||
| Date | Details | Amount($) | Date | Details | Amount($) | |||
| 2 Feb | J Chimusoro | 50 | 31 Dec | Profit and Loss Account | 150 | |||
| 16 Feb | R Mabasa | 100 | ||||||
150 | 150 | |||||||
c) If we use the three column Cash Book Instead the entries would be:
| Sales(Debtor's) Ledger | ||||||||||
| DR | J Chimusoro Account | CR | ||||||||
| Date | Details | Amount($) | Date | Details | Amount($) | |||||
| 8 Jan | Sales | 500 | 2 Feb | Bank | 450 | |||||
| 2 Feb | Discount | 50 | ||||||||
500 | 500 | |||||||||
| R Mabasa Account | ||||||||||
| Date | Details | Amount($) | Date | Details | Amount($) | |||||
| 12 Jan | Sales | 1000 | 16 Feb | Cash | 900 | |||||
| 16 Feb | Discount | 100 | ||||||||
1000 | 1000 | |||||||||
| Cash Book | ||||||||||
| DR | CR | |||||||||
| Date | Details | Discount($) | Cash($) | Bank($) | Date | Details | Discount($) | Cash($) | Bank($) | |
| 2 Feb | J Chimusoro | 50 | 450 | 31 Dec | Balance c/d | 900 | 450 | |||
| 16 Feb | R Mabasa | 100 | 900 | |||||||
150 | 900 | 450 | --- | 900 | 450 |
|||||
| General Ledger | ||||||||||
| Discount Allowed Account | ||||||||||
| Date | Details | Amount($) | Date | Details | Amount($) | |||||
| 31 Dec | Total for the year | 150 | 31 Dec | Profit and Loss Account | 150 | |||||
- Real examination and exercise scenarios are likely to be more complicated than this
To access more topics go to the Cambridge IGCSE Accounting(0452)/O Level Principles of Accounts(7110) Notes.
