2020 JYSS 3E POA EOY P2 Q6
6 Yong Trading buys and sells toys. The business bought toys from Deng on credit. The following transactions with Deng, took place in the month of March 2020.
On March 1, Yong bought toys at a list price of $10 800, less trade discount of 10%. The credit terms state that a cash discount of 5% would be given if payment is made within 13 days.
Yong issued a cheque to pay for purchases made on March 12.
REQUIRED
a. Prepare the journal entries to record the transactions :
[5]
i. 1 March 2020
ii. 12 March 2020
b. Why is a trade discount given?
[1]
c. Why is a cash discount given?
[1]
[TOTAL 7]
SOLUTION
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a)
b)
To encourage customers to buy in bulk, patronage and customer loyalty
c)
To encourage credit customers to pay promptly/early within a specified time.