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. |
8 | Sold goods costing $1 950 to Bumblebee for $2 400. |
11 | Returned goods of list price $720 to Optimus Prime. These goods were purchased on 5 September. |
13 | Received a cheque of $3 724 from Bumblebee after giving her a 2% discount. |
17 | Bumblebee returned goods of list price $150. |
22 | Paid Optimus Prime $500 cash. |
26 | 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. |
REQUIRED
a. Explain one difference between trade discount and cash discount.
[1]
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.
[7]
i. Optimus Prime
ii. Bumblebee
c. State the source documents used by Autobot Trader to record the transactions on the following dates:
[2]
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
[2]
[TOTAL 12]
Any one of the following:
- Trade discount is a reduction off the list price ✔ whereas cash discount is a reduction off the invoiced amount. ✔
Trade discount is given to encourage bulk purchases, customer patronage and loyalty ✔ whereas cash discount is given to encourage early payment. ✔
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. ✔