Sales Entry with Trade Discount and Cash Discount

Introduction:
This is a scenario where a company sold goods to Karan at a trade discount of 10% and a cash discount of 2%. Karan paid cash for only 40,040% value of goods.

Journal Entry:
To record this transaction in the books of accounts, we need to pass a journal entry as follows:

Step 1: Calculation of Trade Discount and Cash Discount:
The first step is to calculate the trade discount and cash discount. The trade discount is given as 10% of the list price, which is Rs. 40,000. Therefore, the trade discount is Rs. 4,000. The cash discount is given as 2% of the net amount after deducting the trade discount. Therefore, the cash discount is Rs. 760 [2% of (40,000 - 4,000)].

Step 2: Calculation of Net Amount:
The next step is to calculate the net amount after deducting the trade discount. The net amount is Rs. 36,000 (list price - trade discount).

Step 3: Calculation of Cash Received:
The cash received by the company is 40,040% of the net amount. Therefore, the cash received is Rs. 14,416 (40,040% of Rs. 36,000).

Step 4: Journal Entry:
To record this transaction in the books of accounts, we need to pass a journal entry as follows:

Cash A/c Dr. 14,416
To Sales A/c 36,000
To Discount Received A/c 760
(Being goods sold to Karan at a trade discount of 10% and a cash discount of 2% and cash received from him)

Explanation:
- The journal entry is passed by debiting the Cash account and crediting the Sales account and Discount Received account.
- The Cash account is debited as the company received cash from Karan.
- The Sales account is credited with the net amount after deducting the trade discount.
- The Discount Received account is credited with the cash discount received by the company.
- The total amount debited and credited in the journal entry is equal, ensuring that the accounting equation remains balanced.

Conclusion:
In conclusion, the above journal entry records the sale of goods to Karan at a trade discount of 10% and a cash discount of 2%. The entry records the cash received by the company and the discounts allowed to the customer.