2020 BGSS 3N POA EOY P2 Q4

2020 BGSS 3N POA EOY P2 Q4

4 Umar buys goods from supplier, Gil, on credit. The following transactions were made by Umar during the month of January 2020.

2020 January

 

1

Umar owed Gil $4 000.

5

Umar issued a cheque to Gil to pay for the outstanding balance owed on 1 January 2020 and received a cash discount of 5%. 

6

Bought inventory at a list price of $1 800. A trade discount of 10% was given.

20

Umar returned goods bought on 6 January. The list price of the goods was $400.

REQUIRED

a. Give one difference between a trade discount and a cash discount.

[2]

b. Prepare the Trade Payable – Gil account in Umar’s books.

[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)

Purchase of goods on credit



(ii)

Return of goods bought on credit

 

d. State the accounting theory that is applied to each of the following scenarios. Copy and complete the following table.

[2]

 

Scenario

Accounting theory applied 

(i)

The activities of a business are separate from the actions of the owner. All transactions are recorded from the point of view of the business.



(ii)

Only business transactions that can be measured in monetary terms are recorded.



[TOTAL 12]

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Trade discount 

Cash discount

Definition

Discount off list price/catalogue price

Discount off invoice amount

When 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)

Purchase of goods on credit

Invoice

(ii)

Return of goods bought on credit

Credit Note

 

 

Scenario

Accounting theory applied 

(i)

The activities of a business are separate from the actions of the owner. All transactions are recorded from the point of view of the business.

Accounting entity theory

(ii)

Only business transactions that can be measured in monetary terms are recorded.

Monetary theory

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