Sold goods costing Rs. 40,000 to Anil at a profit of 20% on sales less...
Journal Entry for Selling Goods to Anil with Trade Discount and Cartage Charges1. Understanding the given informationThe given information is as follows:
- Cost of goods sold = Rs. 40,000
- Profit on sales = 20%
- Trade discount = 20%
- Cartage charges = Rs. 1,000
- The cartage charges are to be charged from the customer.
2. Calculation of Selling PriceTo calculate the selling price, we need to first calculate the selling price before the trade discount.
- Selling price before discount = Cost of goods sold + Profit
- Profit = 20% of Cost of goods sold = 20% of Rs. 40,000 = Rs. 8,000
- Selling price before discount = Rs. 40,000 + Rs. 8,000 = Rs. 48,000
- Trade discount = 20% of Selling price before discount = 20% of Rs. 48,000 = Rs. 9,600
- Selling price after trade discount = Selling price before discount - Trade discount = Rs. 48,000 - Rs. 9,600 = Rs. 38,400
3. Journal EntryThe journal entry for selling goods to Anil with trade discount and cartage charges is as follows:
Account Debit Credit
Sales Account Rs. 38,400
To Anil’s Account Rs. 38,400
Cartage Charges Account Rs. 1,000
To Anil’s Account Rs. 1,000
4. Explanation of the Journal Entry- Sales Account is a nominal account and has been debited with the selling price after the trade discount, i.e. Rs. 38,400.
- Anil’s Account is a personal account and has been credited with the selling price after the trade discount, i.e. Rs. 38,400. This account is credited as we are receiving the payment from Anil.
- Cartage Charges Account is also a nominal account and has been debited with the cartage charges, i.e. Rs. 1,000.
- Anil’s Account has been credited with the cartage charges, as he is the one who will be paying for it.
Hence, the above journal entry records the sale of goods to Anil, along with trade discount and cartage charges, and reflects the correct accounting treatment.