Prepare journal entrie : sold goods to karan of list price 40000 at 10% trade discount and 2% cash discount .karan paid cash for only 40% valueof goods.?

Question

Answer

Journal Entry for Selling Goods to Karan

Details of the Transaction:

Goods sold to Karan at a list price of 40,000

Karan received a 10% trade discount on the list price

Karan also received a 2% cash discount for paying in cash

Karan paid only 40% of the value of the goods in cash

Journal Entry:

Debit: Karan's Account - 24,000 (60% of 40,000)

Debit: Cash Discount Account - 640 (2% of 32,000)

Credit: Sales Account - 32,000

Credit: Trade Discount Account - 4,000 (10% of 40,000)

Explanation:

When goods are sold to customers, it is common to offer discounts to entice them to buy. In this case, Karan received both a trade discount and a cash discount. The trade discount is a reduction in the list price of the goods, while the cash discount is a reduction in the amount owed if the customer pays in cash.

In this transaction, Karan received a 10% trade discount on the list price of 40,000, which reduces the price to 36,000. He also received a 2% cash discount on the reduced price of 36,000, which brings the total amount owed to 35,360.

Karan paid only 40% of this amount in cash, which is 14,144. The remaining 60% of the amount owed, which is 21,216, is recorded as Karan's account receivable.

To record the transaction in the books of accounts, we debit Karan's account for the amount he still owes, which is 24,000 (60% of 40,000). We also debit the cash discount account for the amount of discount given, which is 640 (2% of 32,000). On the credit side, we credit the sales account for the total amount of goods sold, which is 32,000, and credit the trade discount account for the amount of discount given, which is 4,000 (10% of 40,000).

Answer

1. cash A/C Dr. 14,112
Discount Allowed A/C Dr. 288
Karan Dr. 21,600
To Sales A/C 36,000
( Being goods sold to karan at 10% trade discount and2% cash discount. received 40% payment by cash )

WORKING NOTES
Invoices price of goods 40,000
less: trade discount @20% 4,000
= 36,000

i. cash transactions ( 40% of rs 36,000) 14,400
less: cash discount @5% 288
= 14,112

ii. credit transactions (60% of rs 36,000) 21,600

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