2020 BGSS 3E POA EOY P2 Q4

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]

 

Transaction

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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Trade discount 

Cash discount 

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

 

 

Transaction

Source Document 

(i)

Bought goods from a supplier on credit

Invoice

(ii)

Returned goods to Coreen due to incorrect specifications

Credit note

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