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

At the end of a trading period, the total of the discount allowed column in a trader's three-column cash book is ₦4,500₦4,500, while the total of the discount received column is ₦3,200₦3,200. How should these column totals be posted to the general ledger?

  1. Debit Discount Allowed Account with ₦4,500₦4,500 and credit Discount Received Account with ₦3,200₦3,200Answer
  2. B
    Credit Discount Allowed Account with ₦4,500₦4,500 and debit Discount Received Account with ₦3,200₦3,200
  3. C
    Debit Discount Allowed Account with ₦4,500₦4,500 and debit Discount Received Account with ₦3,200₦3,200
  4. D
    Credit Discount Allowed Account with ₦4,500₦4,500 and credit Discount Received Account with ₦3,200₦3,200

Answer

Debit Discount Allowed Account with ₦4,500₦4,500 and credit Discount Received Account with ₦3,200₦3,200
The correct response reflects standard double-entry bookkeeping rules: the total of the discount allowed column (found on the debit side of the three-column cash book) is debited to the Discount Allowed Account in the general ledger as an expense. Similarly, the total of the discount received column (found on the credit side of the cash book) is credited to the Discount Received Account in the general ledger as income.

Step-by-Step Solution

1
Identify the nature of Discount Allowed
Discount Allowed is an expense incurred when allowing cash discounts to debtors.
Expenses have debit balances and must be debited to their respective account in the general ledger.
2
Identify the nature of Discount Received
Discount Received is income gained when receiving cash discounts from creditors.
Incomes have credit balances and must be credited to their respective account in the general ledger.
3
Determine posting from the Three-Column Cash Book totals
The total of the discount allowed column (₦4,500₦4,500) is posted to the debit side of Discount Allowed Account, and the total of discount received column (₦3,200₦3,200) is posted to the credit side of Discount Received Account.
The discount columns in a three-column cash book serve as memo/summary columns, with totals transferred to their general ledger accounts at the end of the period.

Key Concept

Ledger Posting of Cash Book Discount Totals
Estimated Time:1m 0s
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Topics

Three-Column Cash Book and Trade/Cash Discounts

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