CHAPTER 9: BOOK OF ORIGINAL ENTRY: COMPOUND ENTRY, OPENING ENTRY, TRADE DISCOUNT, CASH DISCOUNT, ANSWERS TO ASSIGNMENTS # 9 & 10
LEARNING OUTCOMES:
After going through this lesson, you shall be able to understand the following concepts.
• Recording of a business transaction in Journal
• Compound Journal Entry
• Opening Entry
• Trade discount and Cash discount
.
Compound Journal Entry
In case there are more than two accounts in a transaction, then sometimes instead of passing a number of Journal entries for a single transaction we prefer to pass a single journal entry.
This single journal entry is termed as compound journal entry which involves more than two accounts in a transaction.
Let's look into the following transactions:
1. Started business with cash.
2. Purchased goods for cash.
3. Sold goods on credit to X.
The above transactions have simple journal entries. They are simple entries because these entries have only one debit account and one credit account.
In a transaction, where there are more than one debit or more than one credit or multiple debits and credits, then, for such transactions, we pass a compound journal entry.
Following are the examples given for the transactions, where compound journal entry needs to be passed.
1. ₹ 700 paid to Ram in full settlement of his account of ₹1000.
2. ₹1000 received from Shyam in full settlement of ₹1500.
3.Neha who owed ₹10,000 to the business turned insolvent, only 40% was received from her estate.
WATCH THE VIDEO BELOW TO GET THE EXPLANATION AND CLARITY OF THE ABOVE TRANSACTIONS (COMPOUND ENTRIES)
LINK FOR THE VIDEO ON COMPOUND JOURNAL ENTRIES
Opening Entry
The opening entries are the journal entries we pass to carry forward or bring forward the balances of Assets and Liabilities from one accounting year to another accounting year.
We know the Entity is a Going Concern, and therefore, life of an Entity is split into various Accounting Period.
At the end of each Accounting Period every Entity has some Assets and Liabilities. Those Assets and Liabilities are are carried forward from one accounting year to another accounting year.
To carry forward these balances, we pass an entry called Opening Entry.
We know the Entity is a Going Concern, and therefore, life of an Entity is split into various Accounting Period.
At the end of each Accounting Period every Entity has some Assets and Liabilities. Those Assets and Liabilities are are carried forward from one accounting year to another accounting year.
To carry forward these balances, we pass an entry called Opening Entry.
Given a transaction below, pass and opening entry.
On 31st March 2017 the following balance appeared in the books of the business. Pass an opening entry.
Buildings ₹1000000, Machinery ₹ 200000, Furniture ₹50000, Debtors ₹ 30,000, Stock ₹20000,
Creditors ₹100000, Bills payable ₹200000.
Creditors ₹100000, Bills payable ₹200000.
WATCH THE VIDEO BELOW TO GET THE EXPLANATION AND CLARITY OF THE ABOVE OPENING ENTRY.
It is an entry passed in Journal for bringing forward all previous year ledger balances of the assets, liabilities and capital in the books of current year.
In this entry, we debit all the Assets Account individually and credit all the Liabilities Accounts individually.
Difference in total of assets (Dr. Balances) and total of liabilities (Cr. Balances) is transferred as balancing figure to Capital Account.
This Capital Account is credited in the opening entry.
The opening entry can be passed as:
In this entry, we debit all the Assets Account individually and credit all the Liabilities Accounts individually.
Difference in total of assets (Dr. Balances) and total of liabilities (Cr. Balances) is transferred as balancing figure to Capital Account.
This Capital Account is credited in the opening entry.
The opening entry can be passed as:
Trade Discount and Cash Discount
Trade discount:
is the reduction in the price offered by the manufacturer to its customers, if they agree to make bulk purchase. On the other hand, cash discount is allowed by the manufacturer to the customers, in case, they make prompt payment.
Now, an important point in respect of cash discount which is often mistaken that cash discount is allowed only if the payment is made immediately in cash.
However, it is not true, if the customers make payments within the timeframe, for instance, manufacturer allows a Credit period of 1 week or one month and the customers makes the payment within that time frame.
In this case also, they are very much eligible for cash discount.
Another important difference between trade discount and cash discount is that trade discount is not recorded anywhere in the books whereas, cash discount is very much recorded in the books of accounts.
Also, trade discount is allowed on the list price or also called quoted price after the negotiations with the manufacturer to buy in bulk.
Whereas, cash discount is allowed on the invoice price which is the list price minus the trade discount.
Given below is a transaction:
Sold goods to Ram at a list price of ₹100000, trade discount 25% and cash discount 5%. Pass journal entry.
WATCH THE VIDEO BELOW TO GET THE EXPLANATION AND CLARITY OF THe TRADE DISCOUNT AND CASH DISCOUNT.
LINK FOR THE CLARITY AND EXPLANATION OF TRADE DISCOUNT & CASH DISCOUNT
Trade Discount
It is a discount or reduction in the price of goods charged by the supplier from his customers. This discount is generally allowed by the supplier to his customers when they make bulk purchases.
Trade discount is charged on the list price of the goods.
For example, Rajesh sold goods of quantity 3,000 at the list price of Rs 10 each, allowing trade discount of 5%. In this case, trade discount is calculated as:
Cash Discount
It is a discount allowed by the supplier (or creditor) of the goods to his customers for making immediate payment or for making payment within the credit period (in days/weeks/months) allowed by the supplier.
For example, Rajesh sold goods to a customer for Rs 30,000 on credit. Terms of the credit were 5%, 25 days, this means, if payment is made within 25 days by the customer then he can avail cash discount of 5%.
Therefore, cash discount is calculated as:
Trade Discount versus Cash Discount
Basis of difference between trade discount and cash discount
1. Meaning:
Trade discount: is a discount of reduction in the price of goods charged by the supplier from his customers.
Cash discount: is a discount allowed by the supplier (or creditor) of the goods to his customers for making immediate payment or for making payment within the credit period allowed by the supplier.
2. Objective:
Trade discount: for promoting higher sales.
Cash discount: for encouraging earlier or prompt payments.
3. Allowed:
Trade discount: at the time of purchase of goods.
Cash discount: at the time of making payment (either immediately or within the credit period).
4. Disclosed in Invoice:
Trade discount: disclosed in invoice as deduction from the purchase price.
Cash discount: not disclosed in invoice.
5. Account:
Trade discount: it is never opened as an account in the ledgers.
Cash discount: it is opened as an account in the ledgers.
6 Changes:
Trade discount: it can be changed depending upon the quantity of goods purchased.
Cash discount: It can be changed within the credit period in which payment is to be made.
WATCH THE VIDEO BELOW FOR THE DISTINCTION BETWEEN TRADE DISCOUNT AND CASH DISCOUNT.
LINK FOR THE DIFFERENCE BETWEEN TRADE DISCOUNT & CASH DISCOUNT
ANSWERS TO THE ASSIGNMENT # 9
ANSWERS TO THE ASSIGNMENT # 10
ASSIGNMENT # 10
Trade discount:
is the reduction in the price offered by the manufacturer to its customers, if they agree to make bulk purchase. On the other hand, cash discount is allowed by the manufacturer to the customers, in case, they make prompt payment.
Now, an important point in respect of cash discount which is often mistaken that cash discount is allowed only if the payment is made immediately in cash.
However, it is not true, if the customers make payments within the timeframe, for instance, manufacturer allows a Credit period of 1 week or one month and the customers makes the payment within that time frame.
In this case also, they are very much eligible for cash discount.
Another important difference between trade discount and cash discount is that trade discount is not recorded anywhere in the books whereas, cash discount is very much recorded in the books of accounts.
Also, trade discount is allowed on the list price or also called quoted price after the negotiations with the manufacturer to buy in bulk.
Whereas, cash discount is allowed on the invoice price which is the list price minus the trade discount.
Given below is a transaction:
Sold goods to Ram at a list price of ₹100000, trade discount 25% and cash discount 5%. Pass journal entry.
WATCH THE VIDEO BELOW TO GET THE EXPLANATION AND CLARITY OF THe TRADE DISCOUNT AND CASH DISCOUNT.
LINK FOR THE CLARITY AND EXPLANATION OF TRADE DISCOUNT & CASH DISCOUNT
Trade Discount
It is a discount or reduction in the price of goods charged by the supplier from his customers. This discount is generally allowed by the supplier to his customers when they make bulk purchases.
Trade discount is charged on the list price of the goods.
For example, Rajesh sold goods of quantity 3,000 at the list price of Rs 10 each, allowing trade discount of 5%. In this case, trade discount is calculated as:
Cash Discount
It is a discount allowed by the supplier (or creditor) of the goods to his customers for making immediate payment or for making payment within the credit period (in days/weeks/months) allowed by the supplier.
For example, Rajesh sold goods to a customer for Rs 30,000 on credit. Terms of the credit were 5%, 25 days, this means, if payment is made within 25 days by the customer then he can avail cash discount of 5%.
Therefore, cash discount is calculated as:
Trade Discount versus Cash Discount
Basis of difference between trade discount and cash discount
1. Meaning:
Trade discount: is a discount of reduction in the price of goods charged by the supplier from his customers.
Cash discount: is a discount allowed by the supplier (or creditor) of the goods to his customers for making immediate payment or for making payment within the credit period allowed by the supplier.
2. Objective:
Trade discount: for promoting higher sales.
Cash discount: for encouraging earlier or prompt payments.
3. Allowed:
Trade discount: at the time of purchase of goods.
Cash discount: at the time of making payment (either immediately or within the credit period).
4. Disclosed in Invoice:
Trade discount: disclosed in invoice as deduction from the purchase price.
Cash discount: not disclosed in invoice.
5. Account:
Trade discount: it is never opened as an account in the ledgers.
Cash discount: it is opened as an account in the ledgers.
6 Changes:
Trade discount: it can be changed depending upon the quantity of goods purchased.
Cash discount: It can be changed within the credit period in which payment is to be made.
WATCH THE VIDEO BELOW FOR THE DISTINCTION BETWEEN TRADE DISCOUNT AND CASH DISCOUNT.
LINK FOR THE DIFFERENCE BETWEEN TRADE DISCOUNT & CASH DISCOUNT
ANSWERS TO THE ASSIGNMENT # 9
ASSIGNMENT # 9
1. KAPIL STARTED BUSINESS WITH CASH ₹ 150000.
2. GOODS PURCHASED IN CASH ₹60000
3. GOODS SOLD TO AMIT FOR ₹8000 ON CREDIT.
4. PURCHASED GOODS FROM SHYAM FOR ₹11000 ON CREDIT.
5. AMIT RETURNED GOODS WORTH ₹3000 TO BUSINESS
6. KAPIL RETURNED GOODS TO SHYAM ₹1000
2. GOODS PURCHASED IN CASH ₹60000
3. GOODS SOLD TO AMIT FOR ₹8000 ON CREDIT.
4. PURCHASED GOODS FROM SHYAM FOR ₹11000 ON CREDIT.
5. AMIT RETURNED GOODS WORTH ₹3000 TO BUSINESS
6. KAPIL RETURNED GOODS TO SHYAM ₹1000
|
DATE
|
PARTICULARS
|
LF
|
DEBIT (Rs.)
|
CREDIT (Rs.)
|
|
1
|
Cash A/C…Dr
To Capital A/c
(Being business started)
|
|
150,000
|
150,000
|
|
2
|
Purchases A/C…Dr
To Cash A/C
(Being goods purchased)
|
|
60,000
|
60,000
|
|
3
|
Amit's A/C…Dr
To Sales A/c
(Being goods sold to Amit on credit)
|
|
8,000
|
8,000
|
|
4
|
Purchases A/C…Dr
To Shyam's A/C
(Being goods purchased from
Mr. Shyam)
|
|
11,000
|
11,000
|
|
5
|
Sales Return A/C…Dr
To Amit's A/C (Being goods returned by Amit)
|
|
3,000
|
3,000
|
|
6
|
Shyam'sA/C…Dr
To Purchase Return A/C
(Being goods returned to Shyam)
|
|
1,000
|
1,000
|
|
|
ANSWERS TO THE ASSIGNMENT # 10
ASSIGNMENT # 10
1.CASH DEPOSITED INTO THE BANK ₹8000.
2.RECEIVED A CHEQUE OF ₹5000 FROM AMIT AND BANKED ON THE NEXT DAY.
3. ISSUED A CHEQUE OF ₹10,000 TO SHYAM.
4. BANK INFORMED THAT AMIT'S CHEQUE RETURNED DISHONOURED.
2.RECEIVED A CHEQUE OF ₹5000 FROM AMIT AND BANKED ON THE NEXT DAY.
3. ISSUED A CHEQUE OF ₹10,000 TO SHYAM.
4. BANK INFORMED THAT AMIT'S CHEQUE RETURNED DISHONOURED.
|
DATE
|
PARTICULARS
|
LF
|
DEBIT (Rs.)
|
CREDIT (Rs.)
|
|
1
|
Bank A/C…Dr
To CashlA/C
(Being cash deposited in the bank)
|
|
8,000
|
8,000
|
|
2
Next
Day
|
Cheque in hand A/C…Dr
To Amit's A/C
(Being cheque received from Amit)
Bank A/c ...Dr
To Cheque in hand A/c
(Being Cheque deposited into the bank)
|
|
5,000
5,000
|
5,000
5,000
|
|
3
|
Shyam's A/C…Dr
To Bank A/c
(Being cheque issued to Shyam)
|
|
10,000
|
10,000
|
|
4
|
Amit's A/C…Dr
To Bank A/C
(Being Amit's cheque dishonoured)
|
|
5,000
|
5,000
|
|
|
Rohit jacob
ReplyDelete11 B
Rollno.12
What is the discount that we get in buying products
ReplyDelete