A business firm paid \text{N}80,000 cash to a trade supplier to fully settle an outstandin… — JAMB UTME

A business firm paid $\text{N}80,000$ cash to a trade supplier to fully settle an outstanding debt of $\text{N}84,000$ , having received a prompt payment discount of $\text{N}4,000$ . What is the correct double-entry posting for the $\text{N}4,000$ discount, and how is the discount account classified in the ledger?

Credit Discount Received account with $\text{N}4,000$ ; classified as a nominal accountCevap
B
Debit Discount Allowed account with $\text{N}4,000$ ; classified as a nominal account
C
Credit Trade Payables account with $\text{N}4,000$ ; classified as a personal account
D
Credit Purchases account with $\text{N}4,000$ ; classified as a real account

Cevap

Credit Discount Received account with

\text{N}4,000

; classified as a nominal account.

When settling a debt of

\text{N}84,000

for

\text{N}80,000

cash, the remaining

\text{N}4,000

is a financial gain known as Discount Received. Under double-entry rules, all gains and incomes are credited. Because revenue and expense items belong to nominal accounts, Discount Received is classified as a nominal account.

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Identify the nature of the discount transaction

The discount of

\text{N}4,000

is a cash discount received from a supplier for prompt payment.

Paying a supplier less than the full invoice value to settle an account yields a cash discount received.

Apply double-entry principles to the discount

Credit Discount Received account with

\text{N}4,000

Discount Received represents revenue/gain. Under the rules of double entry, all revenues and gains are credited.

Classify the ledger account type

Discount Received is classified as a Nominal Account.

Nominal accounts deal with expenses, losses, revenues, and gains.

Anahtar Kavram

Double Entry Rules for Cash Discounts and Account Classification

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