Trade discount and cash discount

Sandeep   475000

To sales   475000

Bank    20000

Cash 111375

Discount Allowed  9500

To Sandeep 140875

Cash Discount is the discount given to party on payment of the debt. It is not available on the whole amount when only a part is paid. Its true that total amount received is 131375 as a whole, but , this will be considered as 98 % 2681 will be the cash discount being the 2 %.

Richa, Its un imaginable to receive discount fully on part payment. Assume , you have received only Rs. 1/-. Will you credit your debtor with whole of cash discount.

ITZ JUST RIDICULOUS

bank  20000

cash 111375

discount 2681

    To sandeep   134056

I may be wrong..thanks for correcting me..thanks..

    To  Sales A/c.                  500000

2) At the time of receipt of cash and cash equivalents: -

Bank A/c  Dr.                       20000

Cash A/c Dr.                        113750

Cash Discount A/c Dr.       2321(Approx.)

        To Sandeep A/c                                      136071 (Approx.)

(Since the question is hypothetical the values are not rounded off to "0", whereas usually there will be a mutual understanding for appropriations, (if any as per the terms of agreement)).

Originally posted by : goutam
	Cash Discount is the discount given to party on payment of the debt. It is not available on the whole amount when only a part is paid. Its true that total amount received is 131375 as a whole, but , this will be considered as 98 % 2681 will be the cash discount being the 2 %. Richa, Its un imaginable to receive discount fully on part payment. Assume , you have received only1/-. Will you credit your debtor with whole of cash discount. ITZ JUST RIDICULOUS   bank  20000 cash 111375 discount 2681     To sandeep   134056

i agree with the calculation and entries  

@ ateeq:

as far as i know trade discount is not recorded in the books of accounts

yes . trade discount is not accounted for in the books of account

                           sandeep 475000                                                                                                                                                                                                                                                TO SALES 47500                                                                                                                                                                                                                                                                                                                                                                                                                                                                                BANK  20000                                                                                                                                                                                                                                            CASH 91000                                                                                                                                                                                                                                            DIST,ALLOW22750                                                                                                                                                                                                                                         TO  SANDEEP                             133750                                                

Ateeq,

You have recognised Trade discount in books, which is absolutely wrong.

However, please explain that how you calculated Rs. 2321/- as cash discount

Manish, your calculations are also not clearly shown, Please clarify further

Originally posted by : Ateeq
	In my opinion the following entry can be considered   1) At the time of sales: - Sandeep A/c Dr.                475000 Trade Discount A/c Dr.         25000     To  Sales A/c.                  500000   2) At the time of receipt of cash and cash equivalents: - Bank A/c  Dr.                       20000 Cash A/c Dr.                        113750 Cash Discount A/c Dr.       2321(Approx.)         To Sandeep A/c                                      136071 (Approx.) (Since the question is hypothetical the values are not rounded off to "0", whereas usually there will be a mutual understanding for appropriations, (if any as per the terms of agreement)).

 Ateeq, you got the wrong calculation. follow Goutam for correect one!

In my opinion the following entry can be considered

1) At the time of sales: -

Sandeep A/c Dr.                475000
    To  Sales A/c.                  475000
 

2) At the time of receipt of Bank and cash with discount: -

Bank A/c  Dr.                       20000

Cash A/c Dr.                      111475 (455000/4 = 113750 - 2% =111475)

Cash Discount A/c Dr.            2275  (113750*2%)

        To Sandeep A/c                                      133750

Dinesh, Sorry to counter, but, you are wrong.

suppose you have received all the amount by a cheque, then, wont you allow any discount to your debtors.

Dear Friends,

I must appreciate you all for showing pretty interest in this issue.

>> The reason for not accounting the trade discount is probably the increase in the turnover.

I would further like to know that, Is there is any specific section or circular or any thing else governing this topic of "Not accounting trade discounts".

>> Further I think "Trade discount" plays prominent role for the management to ascertain the loss of revenue which could have achieved if the appropriate decisions would have taken with respect to the negotiation.

Goutam hereunder is the method i have used to calculate: -

Total sales                                 500000

Less: -   trade discount               25000

Less: -   amount paid by chq.     20000

Equals to                                       455000  ---------------(1)

Divide by                                               4

Equals to                                        113750

Add: -                                                  20000

Total                                                  133750 (Divide the same by 98 and multipy by 2)

The actual answer will be  Rs. "2729".

I regret for some calculations error in earlier post.

The deduction of trade discount is made on the invoice and only the net amount is enteredin the purchase journal and stock records.