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I didn’t understand when I compare 2 examples with each other.
I want to know that when we purchase or sell something and received and allowed trade discount will it be recorded as a double entry in the records? because F3 states that trade discount doesn’t appear in the books of account. where will it be recorded?
and can you write a double entry for this example for understandingInvoice
Goods 100@10$ 1000
Less: trade discount (50)
950A further discount of 50$ will be allowed if payment is received within 14 days.
what entry would be made?And a second question if will be allowed CASH discount for us discount received account will be recorded when we made payment?is it true?
In the exam, a cash discount means the same as a settlement discount.
When we sell the goods we record the full amount on the invoice (which is already after subtracting a trade discount), because on that date we do not know whether or not they will pay buy the due date.
When we receive the cash we Dr Cash Cr Receivables with the cash received.
If they have paid on time (and therefore taken the discount) then we Dr Discounts allowed Cr Receivables with the amount of the discount.Both types of discount are covered in full (with examples) in the lecture dealing with control accounts.
Dear Mr Moffat,
I would like to ask something else on that topic.
What would the answer be to the following question:
Within which heading in the statement of profit and loss would TRADE DISCOUNT ALLOWED be included?
A Cost of Sales
B Sales revenue
C Administration Expenses.A tutor gave me the answer as Administration Expenses.
I was just wondering if we do have to account the trade discount allowed, wouldn’t it affect the sales revenue, that is decrease it? Help, please, I am confused.
Thanks
Mel, I don’t know what your teacher said you. But keep in mind that
Trade discount allowed— we deducted it from the our sales
Trade discount received—we deducted it from the our purchase
Cash or Settlement discount allowed– we recorded it as an expense in Income statement
Cash or Settlement discount received–we recorded it as an income in the income statemeMel: Your tutor has told you wrong. Trade discounts are subtracted from the sale price and therefore means we record lower sales. So the answer is B. (It is settlement discounts that are recorded as an expense – as Rasad has written)
B.
But separately, do appreciate that cash discounts (not trade discounts) are now treated differently from how they were being treated when this question was asked seven years ago. The current treatment is, of course, explained in my free lectures.
Manat made a purchase of goods which had a list price of $6,000, on which a trade discount ten per cent was allowed. The seller also offered Manat a ten per cent settlement discount if payment was received within ten days of the invoice date, and expected Manat to take advantage of this offer.
At what cost should this purchase initially be recorded in Manat’s accounting records?
A
$4,800
B $4,860
C
$5,400
D $6,000
Why are you attempting a question for which you do not have an answer? You should be using a Revision Kit – it has answers and explanations. (And have you actually watched my free lectures on this? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well)
In Manet’s records the purchases will initially recorded at $5,400. (This will not be the same as the amount recorded in the seller’s books).
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