ZIMSEC O Level Principles of Accounts 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 Principles of Accounts Notes.
Quick NetOne, Telecel, Africom, And Econet Airtime Recharge
If anything goes wrong, chat with us using the chat feature at the bottom right of this screen