Example Trade Discount Journal entry on purchases

Example Trade Discount Journal entry on purchases

Trade discount is offered at the time of purchases and amount of bill is reduced by the trade discount. Trade discount is not accounted for in books of account and purchases are recorded at net amount. The trade discount must not be confused with early payment discount  that is accounted for in books of account.

Example of Trade Discount

1. Smart & Jan Co made a purchases for 1,000 $ on Cash from Muneeb & Co. and received a Trade discount @ 5%.

Solution

The amount will be recorded at net amount i.e. 1000 ( 1000 –  50) . The amount of $ is calculated 5% of 1000 i.e. 50.

Date	Particulars	Dr	Cr
11 Nov ,2014	Purchases a/c	950
11 Nov ,2014	Cash a/c		950

Example of Partly paid Purchases Journal Entry

Example of Partly paid Purchases Journal Entry

In partly paid purchases the entity make some payment at the time of purchases and the balance amount is paid later on. At the time of purchases the purchases account is debit with full amount of purchases while cash a/c credited with amount paid and individual from whole purchases are made is also credited with the balance payable amount.

Example of Partly paid Purchases

1.       France & Europe Co. made a purchases for 700 $ on credit from Khan on and made a payment of  400 $ the balance amount was paid after one month.

Solution

Date	Particulars	Dr	Cr
10 Jan,2014	Purchases a/c	700
	Cash  a/c		400
10 Jan ,2014	Khan a/c		300

The following entry will be made at the time of future payment of balance amount.

Date	Particulars	Dr	Cr
13 Nov ,2014	Khan a/c	300
13 Nov ,2014	Bank a/c		300

Example of Credit Purchases Journal Entry

Example of Credit Purchases Journal Entry

In credit purchases the amount of purchases is debit being the asset and the individual from whom the purchases were made is credited at the time of purchase. The person credited is paid in future and at that time individual /supplier debited and cash or bank account credited.

Example of Credit Purchases

1. Sauce & Saleem Co. made a purchases for 500 $ on credit from Akram on 11 october ,2014

2. Akram was paid the amount on 20 Oct,2014

Solution

Date	Particulars	Dr	Cr
11 Oct,2014	Purchases a/c	500
11 Oct ,2014	Akram a/c		500

Date	Particulars	Dr	Cr
13 Nov ,2014	Akram a/c	500
13 Nov ,2014	Bank a/c		500

Example of Cash Purchases Journal Entry

Example of Cash Purchases Journal Entry

In Cash purchases the amount of purchases is debit being the asset and amount of cash paid is credited being the asset of the company.

Example of Cash Purchases

1. William & C0 made a purchases for 200 $ on Cash on 11 November ,2014

2. LaLa & C0 made a purchases making a payment through cheque 400 $ on  13 November.

Solution

Date	Particulars	Dr	Cr
11 Nov ,2014	Purchases a/c	200
11 Nov ,2014	Cash a/c		200

Date	Particulars	Dr	Cr
13 Nov ,2014	Purchases a/c	400
13 Nov ,2014	Bank a/c		400