Cash discounts vs Trade discounts

Cash discounts are given for the following reasons except

• To encourage prompt re-payment

• To reduce the amount owed

• To encourage customers to pay up in cash

• To lessen uncollectible debts

The following are characteristics of trade discount except

• To be recorded in business books

• Given at the point of buying and selling.

• Deducted from list price

• Given to encourage sales of slow moving items

1/7, N25 written on an invoice means

• Trade discount of 1% for 7 items

• Cash discount 1% if payment is received within a week

• Cash discount 7% if payment is within 1 days

• Trade discount of 25% if payment is made within 1 to 7 days,

Business sold goods for $900 by cash to Ivy. The cost of the goods was $300. The journal entries are

• Dr Cost of sales 300

  Cr Inventory 300

  Dr Trade receivable 900

  Cr Sales revenue 900

• Dr Trade receivable 900

  Cr Inventory 900

  Dr Cost of sales 300

  Cr Sales revenue 300

• Dr Cost of sales 300

  Cr Inventory 300

  Dr Cash in hand 900

  Cr Sales revenue 900

• Dr Trade payable 900

  Cr Sales revenue 900

  Dr Inventory 300

  Cr Cost of sales 300

Payment to credit supplier for debts of $2700 by cheque. A 10% cash discount was given.

• Dr Trade payable 2700

  Cr Cash at bank 2700

  Dr Trade payable 300

  Cr Discount allowed 300

• Dr Trade payable 2430

  Cr Cash at bank 2430

  Dr Trade payable 270

  Cr Discount received 270

• Dr Trade payable 2700

  Cr Cash in hand 2700

  Dr Trade payable 300

  Cr Discount received 300

• Dr Trade receivable 2430

  Cr Cash in hand 2430

  Dr Trade receivable 270

  Cr Discount allowed 270

Purchase goods at list price $4500, trade discount of 20% on credit. 5/10 N28

• Dr Inventory 4500

  Cr Cash at bank 4500

• Dr Inventory 3600

  Cr Cash in hand 3600

• Dr inventory 3600

  Cr Trade payable 3600

• Dr Inventory 3600

  Cr Trade payable 3600

  Dr Inventory 900

  Cr Trade discount 900

Which discount(s) can be given to a credit customer (more than 1 answer)

• Trade discount

• Discount received

• Discount allowed

Credit customer returned goods at list price $500 with a 5% trade discount.

• Dr Sales return 450

  Cr Trade receivables 450

• Dr Sales return 500

  Cr Trade payable 500

• Dr Sales revenue 500

  Cr Trade receivables 500

• Dr Inventory 500 Cr Cost of sales 500