ZIMSEC O Level Principles of Accounts Notes: Source Documents: Three Column Cash Book: Discount Allowed Example

  • We have already looked at Discount Allowed here
  • Here we will look at a simple example in order to look at the entries you need to make
  • We sold goods worth $500 to J Chimusoro on credit on 8 January
  • On January 12 we sold goods worth 1000 on credit R Mabasa
  • Chimusoro settles his account by making an RTGS deposit into our bank account on 3 February
  • On 16 February R Mabasa made a $900 cash payment to settle her account
  • What would be the entries in the books if:
    1. Our business does not have a cash discount policy in place
    2. Our business offers a Cash Discount of 10% if an account is settled within 3 months

Solution

a) Assuming that no other transactions took place without discount the following entries would be made in the books

Sales(Debtor's) Ledger
DRJ Chimusoro AccountCR
DateDetailsAmount($)DateDetailsAmount($)
8 JanSales

500

2 FebBank

500

R Mabasa Account
DateDetailsAmount($)DateDetailsAmount($)
12 JanSales

1000

16 FebCash

1000

Cash Book
DRCR
DateDetailsCash($)Bank($)DateDetailsCash($)Bank ($)
2 FebJ Chimusoro50031 DecBalance c/d1000500
16 FebR Mabasa1000

1000

500

1000

500

b) With discount in a normal two column Cash Book the entries would be:

Sales(Debtor's) Ledger
DRJ Chimusoro AccountCR
DateDetailsAmount($)DateDetailsAmount($)
8 JanSales5002 FebBank450
2 FebDiscount50

500

500

R Mabasa Account
DateDetailsAmount($)DateDetailsAmount($)
12 JanSales100016 FebCash900
16 FebDiscount100

1000

1000

Cash Book
DRCR
DateDetailsCash($)Bank($)DateDetailsCash($)Bank ($)
2 FebJ Chimusoro45031 DecBalance c/d900450
16 FebR Mabasa900

900

450

900

450

General Ledger
Discount Allowed Account
DateDetailsAmount($)DateDetailsAmount($)
2 FebJ Chimusoro5031 DecProfit and Loss Account150
16 FebR Mabasa100

150

150

c) If we use the three column Cash Book Instead the entries would be:

Sales(Debtor's) Ledger
DRJ Chimusoro AccountCR
DateDetailsAmount($)DateDetailsAmount($)
8 JanSales5002 FebBank450
2 FebDiscount50

500

500

R Mabasa Account
DateDetailsAmount($)DateDetailsAmount($)
12 JanSales100016 FebCash900
16 FebDiscount100

1000

1000

Cash Book
DRCR
DateDetailsDiscount($)Cash($)Bank($)DateDetailsDiscount($)Cash($)Bank($)
2 FebJ Chimusoro5045031 DecBalance c/d900450
16 FebR Mabasa100900

150

900

450

---

900

450

General Ledger
Discount Allowed Account
DateDetailsAmount($)DateDetailsAmount($)
31 DecTotal for the year

150

31 DecProfit and Loss Account

150

  • Real examination and exercise scenarios are likely to be more complicated than this

To access more topics go to the Principles of Accounts Notes.