Principles of Accounting: Discount Allowed entries simple example

Principles of Accounting: Discount Allowed entries simple example

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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:
1. Our business does not have a cash discount policy in place
2. 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.

By Garikai Dzoma|2017-07-21T12:16:24+02:00July 21st, 2017|Notes, Ordinary Level Notes, Principles of Accounts Notes|Comments Off

About the Author: Garikai Dzoma

He holds an Honours in Accountancy degree from the University of Zimbabwe. He is passionate about technology and its practical application in today's world.