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Difficulty: EasyThree-Column Cash Book and Trade/Cash Discounts

Ade purchased goods listed at ₦50,000₦50,000, subject to a 10%10\% trade discount and a 5%5\% cash discount for prompt settlement. If Ade settled the account within the discount period, what is the amount of cash discount received in Naira (₦₦) to be recorded in the three-column cash book?

Answer: 2250 ₦

Answer

The amount of cash discount received to be entered in the three-column cash book is ₦2,250.
Trade discount is subtracted from the catalog price to get the net invoice value of ₦45,000. Cash discount for prompt payment is calculated as 5% of ₦45,000, giving ₦2,250, which is recorded in the discount column of the cash book.

Step-by-Step Solution

1
Calculate the trade discount
Trade discount = 10% of ₦50,000 = ₦5,000
Trade discount is a reduction in catalog price and is calculated first.
2
Determine the net invoice amount
Net Invoice Amount = ₦50,000 - ₦5,000 = ₦45,000
Trade discount is deducted from the list price before calculating cash discount.
3
Calculate the cash discount
Cash discount = 5% of ₦45,000 = ₦2,250
Cash discount is applied to the net invoice price for prompt payment.

Key Concept

Calculation of cash discount after deducting trade discount from list price
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Topics

Three-Column Cash Book and Trade/Cash Discounts

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