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]
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]
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 |
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. |