ZIMSEC O Level Principles of Accounts Notes: Source Documents: Three Column Cash Book: Discount Received entries simple example

  • We have looked at the concept of Discount Received here
  • In this topic we will look at entries that can be used to record discount received
  • One thing to be wary off is that different suppliers will likely have different discount rates
  • Some will likely offer no discount at all
  • Be careful to apply the correct discount rate to the corresponding supplier
  • Below is an example exercise and solution of the entries:

Simple Discount Received Example

  • The following transactions took place during the first month of A Moyo’s business:
  • 1 Jan Started the business with 5000 cash
  • 3 Jan deposited 4000 into the bank
  • 5 Jan bought goods worth 500 on credit from R Matingo
  • 7 Jan bought goods worth 1000 on credit from P Hatizivi
  • 17 Jan paid the amount using cash owing to R Matingo and received a 10% discount
  • 29 Jan paid the amount owing to P Hatizivi using a bank transfer and received 5% discount
  • No other transactions took place during the month

Required:

  1. Show the double entries to be made in the Cash Book, Creditor’s Ledger/Purchases Ledger and General Ledger if the business uses a two column Cash Book
  2. Show the double entries to be made in the the Cash Book, Creditor’s Ledger/Purchases Ledger and General Ledger if the business uses a two column Cash Book

NB Do not show the Profit and Loss Account. We are also assuming that A Moyo’s accounting/trading period is one month long

1) Solution when using the two column Cash Book

Purchases(Creditor's) Ledger
DRR Matingo AccountCR
DateDetailsAmount($)DateDetailsAmount($)
17 JanCash4501 JanPurchases500
17 JanDiscount50

500

500

P Hatizivi Account
DateDetailsAmount($)DateDetailsAmount($)
29 JanBank9507 JanPurchases1000
29 JanDiscount50

1000

1000

Cash Book
DRCR
DateDetailsCash($)Bank($)DateDetailsCash($)Bank($)
1 JanCapital50003 JanBank4000
3 JanCash400017 JanR Matingo450
29 JanP Hatizivi950
31 JanBalance c/d5503050

5000

4000

5000

4000

General Ledger
Discount Received Account
DateDetailsAmount($)DateDetailsAmount($)
31 JanProfit and Loss10017 JanR Matingo50
29 JanP Hatizivi50

100

100

2) Solution when using a three column Cash Book

Purchases(Creditor's) Ledger
DRR Matingo AccountCR
DateDetailsAmount($)DateDetailsAmount($)
17 JanCash4501 JanPurchases500
17 JanDiscount50

500

500

P Hatizivi Account
DateDetailsAmount($)DateDetailsAmount($)
29 JanBank9507 JanPurchases1000
29 JanDiscount50

1000

1000

Cash Book
DRCR
DateDetailsDiscount($)Cash($)Bank($)DateDetailsDiscount($)Cash($)Bank($)
1 JanCapital50003 JanBank4000
3 JanCash400017 JanR Matingo50450
29 JanP Hatizivi50950
31 JanBalance c/d5503050

---

5000

4000

100

5000

4000

General Ledger
Discount Received Account
DateDetailsAmount($)DateDetailsAmount($)
31 JanProfit and Loss

100

31 JanTotal for the month

100

  • This is a simple example showing only Discount Received
  • In real life Discount Allowed is involved as well
  • To see entries involving both Discount Received and Discount Allowed click here

To access more topics go to the Principles of Accounts Notes.

 

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