What is difference between trade discount and cash discount?
Trade Discount
1) This discount is allowed by wholesaler or manufacturer to the retailer at a fixed percentage on the listed price of goods.
2) It is allowed when goods are purchased in bulk, i.e., large quantity.
3) It is not recorded separately in the books of accounts.
4) For example, if a trader sells goods of the list price of ₹1,00,000 at 20% trade discount for cash, the entry will be:-
Cash A/c Dr. | 80,000 | |
To Sales A/c | 80,000 |
Cash Discount
1) Cash Discount is allowed if the customer makes the payment immediately or within a fixed period.
2) It is allowed when payment is made on or before a specified date.
3) It is recorded separately in the books of accounts.
4) For example, if a trader sells goods of the list price of ₹20,000 at 10% trade discount and 2% cash discount, the net amount will be calculated as under: ₹
List Price 20,000
Less: Trade Discount @ 10%. 2,000
18,000
Less:. Cash Discount @ 2%. 18,000 × 2/100 360
17,640
It means that ₹17,640 will be paid if the payment is made in cash.
Total of these transactions is posted in purchase account :
(i) Purchase of furniture
(ii) Cash and credit purchase
(iii) Purchases return
(iv) Purchase of stationery
Briefly state how the cash book is both journal and a ledger.
State whether the following statements are True or False :
(a) Journal is a book of secondary entry.
(b) One debit account and more than one credit account in a entry is called compound entry.
(c) Assets sold on credit are entered in sales journal.
(d) Cash and credit purchases are entered in purchasejJournal.
(e) Cash sales are entered in sales journal.
(f) Cash book records transactions relating to receipts and payments.
(g) Ledger is a subsidiary book.
(h) Petty cash book is a book having record of big payments.
(i) Cash received is entered on the debit side of cash book.
(j) Transaction recorded both on debit and credit side of cash book is known as contra entry.
(k) Balancing of account means total of debit and credit side.
(l) Credit purchase of machine is entered in purchase journal.
Credit balance of bank account in cash book shows :
(i) Overdraft
(ii) Cash deposited in our bank
(iii) Cash withdrawn from bank
(iv) None of these
When a firm maintains a cash book, it need not maintain ;
(i) Journal Proper
(ii) Purchases (journal) book
(iii) Sales (journal) book
(iv) Bank and cash account in the ledger
Fill in the Correct Words :
(a) Cash book is a ......... journal.
(b) In Journal proper, only......... discount is recorded.
(c) Return of goods purchased on credit to the suppliers will be entered in ...... Journal.
(d) Assets sold on credit are entered in .........
(e) Double column cash book records transaction relating to ......... and .........
(f) Total of the debit side of cash book is ......... than the credit side.
(g) Cash book does not record the ......... transactions.
(h) In double column cash book ......... transactions are also recorded.
(i) Credit balance shown by a bank column in cash book is .........
(j) The amount paid to the petty cashier at the beginning of a period is known as ......... amount.
(k) In purchase book goods purchased on ......... are recorded.
Double column cash book records:
(i) All transactions
(ii) Cash and bank transactions
(iii) Only cash transactions
(iv) Only credit transactions
The periodic total of sales return journal is posted to :
(i) Sales account
(ii) Goods account
(iii) Purchases return account
(iv) Sales return account
Goods purchased on cash are recorded in the :
(i) Purchases (journal) book
(ii) Sales (journal) book
(iii) Cash book
(iv) Purchases return (journal) book
What is petty cash book? How it is prepared?
Name any two types of commonly used negotiable instruments.
Why is it necessary to record the adjusting entries in the preparation of final accounts?
State the meaning of incomplete records?
What is ‘Depreciation’?
State the meaning of a trial balance?
State the four basic requirements of a database applications.
Define accounting.
State the different elements of a computer system.
Why is it necessary for accountants to assume that business entity will remain a going concern?
State the need for the preparation of bank reconciliation statement?
Fill in the correct words :
(i) Depreciation is a decline in the value of ...........
(ii) Installation, freight and transport expenses are a part of ...........
(iii) Provision is a ........... against profit.
(iv) Reserve created for maintaining a stable rate of dividend is termed as...........
Deepti wants to buy a building for her business today. Which of the following is the relevant data for his decision?
a. Similar business acquired the required building in 2000 for ₹ 10,00,000
b. Building cost details of 2003
c. Building cost details of 1998
d. Similar building cost in August, 2005 ₹ 25,00,000
Mr. Sunrise started a business for buying and selling of stationery with ₹ 5,00,000 as an initial investment. Of which he paid ₹ 1,00,000 for furniture, ₹ 2,00,000 for buying stationery items. He employed a sales person and clerk. At the end of the month he paid ₹ 5,000 as their salaries. Out of the stationery bought he sold some stationery for ₹ 1,50,000 for cash and some other stationery for ₹ 1,00,000 on credit basis to Mr. Ravi. Subsequently, he bought stationery items of ₹ 1,50,000 from Mr. Peace. In the first week of next month there was a fire accident and he lost ₹ 30,000 worth of stationery. A part of the machinery, which cost ₹ 40,000, was sold for ₹ 45,000.
From the above, answer the following :
1. What is the amount of capital with which Mr. Sunrise started business?
2. What are the fixed assets he bought?
3. What is the value of the goods purchased?
4. Who is the creditor and state the amount payable to him?
5. What are the expenses?
6. What is the gain he earned?
7. What is the loss he incurred?
8. Who is the debtor? What is the amount receivable from him?
9. What is the total amount of expenses and losses incurred?
10. Determine if the following are assets, liabilities, revenues, expenses or none of the these: sales, debtors, creditors, salary to manager, discount to debtors, drawings by the owner.
The primary qualities that make accounting information useful for decision-making are :
(a) Relevance and freedom from bias
(b) Reliability and comparability
(c) Comparability and consistency
(d) None of the above
Accounting equation remains intact under all circumstances. Justify the statement with the help of an example.
Give the performa of a Bill of Exchange.
A bill of exchange must contain “an unconditional promise to pay” Do you agree with a statement?
What is meant by renewal of a bill of exchange?
What is retirement of a bill of exchange?
Briefly explain the benefits of maintaining a Bills Payable Book and state how is its posting is done in the ledger?