2020 NAS 3E POA EOY P2 Q4

4 Autobot Trader buys and sells car accessories on credit. An extract from the business’ books on 1 September 2020 showed the following balances.



Amount owed to Optimus Prime

2 150

Amount owed by Bumblebee

5 390

In the month of September 2020, the following transactions took place

Sep 5

Purchased goods of list price $8 600 less 5% discount from Optimus Prime.


Sold goods costing $1 950 to Bumblebee for $2 400.


Returned goods of list price $720 to Optimus Prime. These goods were purchased on 5 September. 


Received a cheque of $3 724 from Bumblebee after giving her a 2% discount.


Bumblebee returned goods of list price $150.


Paid Optimus Prime $500 cash.


Purchased a delivery van worth $67 000 from Optimus Prime and paid a deposit of $10 000 by cheque. The balance is to be paid by instalments over the next 24 months. 


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


b. Prepare the following accounts in Autobot Trader’s books for the month of September 2020, stating clearly the relationship between each of them and Autobot Trader, in the account title.


i. Optimus Prime

ii. Bumblebee

c. State the source documents used by Autobot Trader to record the transactions on the following dates:


i. 5 September 2020

ii. 13 September 2020

iii. 17 September 2020

iv. 22 September 2020

d. Explain, using a suitable accounting theory, why source documents are important


[TOTAL 12]

Lorem ipsum dolor sit amet, consectetur adipisicing elit. Optio, neque qui velit. Magni dolorum quidem ipsam eligendi, totam, facilis laudantium cum accusamus ullam voluptatibus commodi numquam, error, est. Ea, consequatur.

Any one of the following: 

Trade discount is given to encourage bulk purchases, customer patronage and loyalty whereas cash discount is given to encourage early payment. 


(i) Invoice

(ii) Receipt

(iii) Credit note

(iv) Payment voucher


Source documents provides evidence ✔ that the transactions have taken place. ✔ This is consistent with the objectivity theory ✔ which states that business should only record transactions using reliable and verifiable information. ✔