2020 BGSS 3E POA EOY P2 Q4
4 Ethan buys goods from Ata Trading on credit. The following transactions were made by Ethan during the month of January 2020.
2020 January | |
1 | Ethan owed Ata Trading $4 000. |
5 | Ethan issued a cheque to Ata Trading to pay for the outstanding balance owed on 1 January 2020 and received a cash discount of 5%. |
6 | Ethan bought inventory from Ata Trading at a list price of $1 800. A trade discount of 10% was given. |
20 | Ethan returned goods to Ata Trading bought on 6 January. The list price of the goods was $400. |
REQUIRED
a. Give two differences between a trade discount and a cash discount.
[4]
b. Prepare the account of Ata Trading in Ethan’s books. Bring down the balance to the next month.
[6]
c. For each of the transactions listed below, identify the source document involved and the journal it is recorded in. Copy and complete the following table.
[2]
Source Document | ||
(i) | Bought goods from a supplier on credit | |
(ii) | Returned goods to Coreen due to incorrect specifications |
[TOTAL 12]
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Definition | Discount off list price/catalogue price | Discount off invoice amount |
When is it given | At point of purchase/sale | At point of payment / receipt of money (must be within discount period) |
Purpose | To encourage bulk purchases To encourage customer loyalty | To encourage customers to settle debts promptly |
Bookkeeping | Not recorded in ledger accounts, only shown in Special Journals | Recorded in discount allowed (expense) or discount received (income) account |
Source Document | ||
(i) | Bought goods from a supplier on credit | |
(ii) | Returned goods to Coreen due to incorrect specifications |