Cash Book Accounting Quiz Explained/ Ledger Accounts
A business allows a customer a trade discount of 10% and a cash discount of 5%, the list price of goods was $2000.
The customer avails the cash discount, what will be entered in the discount column of cash book when the customer pays the invoice?
Cash Book Accounting Quiz Explanation
In this Cash Book Accounting Quiz,
List price of Goods is $2,000
The invoice value of goods is List price minus the Trade discount, that will be $2,000 – $2000(10%) = $2,000 – 200 = $1800.
So, the invoice value is $1,800 this is the amount receivable by the business or the amount that is payable by the customer.
Now, the business also offers a cash discount of 5% on meeting some condition or requirement, but that is not mentioned in this quiz. However it is clearly stated that the customer has availed the Cash Discount.
So, we have to apply 5% on the invoice price of $1800 to get the discount amount.
Discount availed by customer = 5% of $1800 = $90
Therefore, when the customer pays the invoice of $1800, he will actually pay $1710 after availing a cash discount of $90.
Therefore, in cash book of business $90 will be entered in the discount column. Or simply you can say, the discount expense of business in this case is $90.