Cash ac dr
ram ac dr
discount allowed ac dr
to sales ac

Journal Entry for Goods Sold to Ram with Trade and Cash Discounts

When a business sells goods with a trade discount and cash discount, it must record the transaction in its accounting records. The following is the journal entry for goods sold to Ram with a trade discount of 20% and a cash discount of 5%, with one-third payment received in cash:

1. Record the Sale of Goods

• Debit: Ram's Account (Accounts Receivable) - (Full amount of the sale)


• Credit: Sales Account (Net amount after trade discount of 20%) - (80% of the full amount of the sale)


• Credit: Trade Discount Allowed Account - (20% of the full amount of the sale)

2. Record the Cash Received

• Debit: Cash Account - (One-third of the net amount after trade discount and cash discount)


• Debit: Cash Discount Allowed Account - (5% of the net amount after trade discount)


• Credit: Ram's Account (Accounts Receivable) - (One-third of the net amount after trade discount and cash discount)

3. Record the Remaining Amount Due

• Debit: Ram's Account (Accounts Receivable) - (Two-thirds of the net amount after trade discount and cash discount)


• Credit: Cash Discount Allowed Account - (5% of the remaining amount due)


• Credit: Sales Account - (Two-thirds of the net amount after trade discount and cash discount)

Explanation:

The above journal entry reflects a sale of goods to Ram for an amount that includes a trade discount of 20% and a cash discount of 5%. The trade discount is given to encourage the customer to purchase goods in larger quantities, while the cash discount is provided to incentivize early payment of the remaining amount due.

In the first step, the sale of goods is recorded, with Ram's account debited for the full amount of the sale, and the sales account credited for the net amount after the trade discount of 20%. The trade discount allowed account is also credited for the 20% discount provided.

Next, the cash received from Ram is recorded, with the cash account debited for one-third of the net amount after the trade and cash discounts, the cash discount allowed account debited for the 5% discount provided, and Ram's account credited for one-third of the net amount after the trade and cash discounts.

Finally, the remaining amount due from Ram is recorded, with Ram's account debited for two-thirds of the net amount after the trade and cash discounts, and the sales account credited for the same amount. The cash discount allowed account is also credited for the 5% discount provided on the remaining amount due.