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Trade discount and cash discount

06 October 2011

Sold goods to Sandeep of Rs.5,00,000 at 5 % trade discount and 2% cash discount terms...Recd 20,000 by cheque and 1/4 th of the balance by cash...

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17 Replies

CA RICHA BADALIA (CA,CS) (1682 Points)
Replied 06 October 2011

Sandeep 475000

To sales 475000

Bank 20000

Cash 111375

Discount Allowed 9500

To Sandeep 140875

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CA Goutam Sharma (Chartered Accountant in Practice) (468 Points)
Replied 07 October 2011

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

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CA RICHA BADALIA (CA,CS) (1682 Points)
Replied 07 October 2011

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

1 Like

Ateeq (CA - Final) (218 Points)
Replied 07 October 2011

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)).

Ashutosh Biswal (Asst.Manager Finance) (283 Points)
Replied 07 October 2011

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

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Hardeep Singh (CHARTERED ACCOUNTANT) (205 Points)
Replied 07 October 2011

@ ateeq:

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

priyatambika ( ca final student) (323 Points)
Replied 07 October 2011

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

manish kumar (ca) (26 Points)
Replied 08 October 2011

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

CA Goutam Sharma (Chartered Accountant in Practice) (468 Points)
Replied 08 October 2011

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

Bhaskar Unnikrishnan CPA CMA (Accounts / Administration) (414 Points)
Replied 08 October 2011

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!

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Dinesh Kumar R. Tiwari (STP) (38 Points)
Replied 08 October 2011

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

CA Goutam Sharma (Chartered Accountant in Practice) (468 Points)
Replied 08 October 2011

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.

Ateeq (CA - Final) (218 Points)
Replied 08 October 2011

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.