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EXAMPLE No.4 Drawing, Charity, Loss of goods, Distributing goods as sample

Whenever the following events take place, the purchase account is credited

  • Goods drawn by owner for personal use
  • Goods given as charity
  • Goods distributed as free sample
  • Goods lost by fire or any other reason


Following are the transactions of a cement company


   January 3.Owner of company used cement for construction his own house costing $5000
   January 5.10 bags of cement given as charity for the construction of a school worth $2000  
   January 22.Three bags of cement were stolen $800
   January 25.15 bags of cement given as free sample $4000
   January 28.Some cement lost by fire costing $10,000
   




  DATE  DESCRIPTION FOLIO DEBIT CREDIT





   Jan 3

   Drawings

                    Purchases

   $5000

   
  

   $5000





   Jan. 5

   Charity

                    Purchases

   $2000

   
   

   $2000





   Jan. 22

   Lost by theft

                    Purchases

   $800

   
   

   $800





   Jan. 25

   Free samples

                    Purchases

   $4000

   
   

   $4000





   Jan. 28

   Lost by fire

                    Purchases

   $10,000

   
   

   $10,000








EXAMPLE No.5 Treatment of Discounts

There are two kinds of discount (1) Trade discount (2) Cash discount

Trade Discount
Trade discount is an allowance or a deduction made from the list price of goods at the time when goods are being purchased or sold. There is no need to open a separate trade discount account because accountants enter discounted price of goods in purchase and sales accounts

Cash Discount
A discount on quick or prompt repayment of credit. For example a business purchases goods on credit and if it makes repayment of credit within a specific period of time, seller would like provide the business with cash discount on quick repayment. Accountants, therefore, prepare a separate account for cash discount




   January 3.Purchased goods on account from Deadman $2000; subject to 2% trade discount
   January 5.Purchase furniture for cash $2000 and seller gave 5% trade discount because of bulk purchase
   January 22.Sold goods for cash $500 less 2% trade discount
   January 25.$5000 was payable to Mr. Johnny Bravo was settled after deducting 2% cash discount
   January 26.Paid $5000 to one of the accounts payable the BS-Store and cash discount was $500
   January 28.A debtor from whom $4000 was receivable, repaid his debt after getting 3% cash discount
   January 29.$3000 was receivable from Xman,  we got paid after allowing 5% cash discount
   January 30.There was $5500 payable to Super Co. for goods purchased on credit, was paid and cash discount was $500
  




  DATE  DESCRIPTION FOLIO DEBIT CREDIT





   Jan. 3

   Purchases

                    Creditor (Deadman)

   $1960

   
  

   $1960





   Jan. 5

   Furniture

                    Cash

   $1900

   
   

   $1900





   Jan. 22

   Cash

                    Sales

   $490

   
   

   $490





   Jan. 25

   Creditor (Johnny bravo)

                    Discount received
                    Cash

   $5000       

   $100
   $4900





   Jan. 26

   Creditor (BS-Store)

                    Discount received
                    Cash

   $5500

   
   

   $500
   $5000





   Jan. 28

   Discount allowed
   Cash

                    Debtor

   $120
   $3880
   

   
   $4000





   Jan. 29

   Discount allowed
   Cash

                    Debtor (Xman)

   $150
   $2850

   
   

   
   $3000





   Jan. 30

   Creditor (Super Co.)

                    Discount received
                    Cash

   $5500

   
   

   $500
   $5000