Journal Entry for Sale of Goods with Trade and Cash Discounts

Overview:
When a business sells goods, it records the transaction in the accounting records through a journal entry. This entry should include the amount of the sale, the discounts offered, and any applicable taxes.

Given:
Sold goods to Mohan of the list price of 5000 subject to 10% trade discount and 5% cash discount. Mohan availed a valid cash discount.

Journal Entry:
The journal entry for the sale of goods with trade and cash discounts is as follows:

Debit: Cash or Accounts Receivable (depending on whether payment is received immediately or later) - 4,265 (5000 - 10% trade discount - 5% cash discount)
Credit: Sales - 4,500 (list price)
Credit: Trade Discount - 500 (10% trade discount)
Credit: Cash Discount - 235 (5% cash discount)

Explanation:
The journal entry above follows the basic accounting equation, where the total amount of debits equals the total amount of credits. Here's a breakdown of each account involved:

- Cash or Accounts Receivable: This account is debited for the amount received from Mohan after deducting the trade and cash discounts.
- Sales: This account is credited for the list price of the goods sold.
- Trade Discount: This account is credited for the amount of the trade discount given to Mohan (10% of list price).
- Cash Discount: This account is credited for the amount of cash discount given to Mohan (5% of the amount after trade discount).

Conclusion:
The journal entry for the sale of goods with trade and cash discounts involves several accounts, including Cash or Accounts Receivable, Sales, Trade Discount, and Cash Discount. By properly recording these transactions, businesses can accurately track their sales and discounts given, and ensure that their financial statements reflect the true state of their business.