A trader settled a debt of \text{₦}150,000 owed to a supplier after receiving a trade disc… — JAMB UTME

A trader settled a debt of $\text{₦}150,000$ owed to a supplier after receiving a trade discount of $10\%$ and a cash discount of $5\%$ for prompt payment by cheque. What amount will be entered in the bank column on the credit side of the trader's three-column cash book?

$\text{₦}128,250$ Answer
B
$\text{₦}127,500$
C
$\text{₦}135,000$
D
$\text{₦}142,500$

Answer

The amount entered in the bank column on the credit side is

\text{₦}128,250

Trade discounts are deducted prior to accounting entry and do not appear in the cash book. The net invoice price is

\text{₦}135,000

. The

5\%

cash discount earned is calculated on

\text{₦}135,000

, which gives

\text{₦}6,750

. The actual cheque paid and entered in the bank column on the credit side is

\text{₦}135,000 - \text{₦}6,750 = \text{₦}128,250

Step-by-Step Solution

Calculate the net invoice price after deducting trade discount.

Trade discount =

10\% \times \text{₦}150,000 = \text{₦}15,000

. Net invoice amount =

\text{₦}150,000 - \text{₦}15,000 = \text{₦}135,000

Trade discount is deducted immediately on the invoice and is not recorded in the cash book.

Calculate the cash discount on the net invoice price.

Cash discount =

5\% \times \text{₦}135,000 = \text{₦}6,750

Cash discount for prompt payment is calculated on the net amount billed.

Determine the net cash/cheque paid for entry in the bank column.

Net cheque payment =

\text{₦}135,000 - \text{₦}6,750 = \text{₦}128,250

The net amount paid by cheque is entered in the bank column, while

\text{₦}6,750

is entered in the discount received column.

Key Concept

Calculation and recording of cash discount versus trade discount in the three-column cash book.

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