Chapter 4

Question 1

3 rules of the double-entry system (double-entry rules)

Answer 1

1. Every business transaction affects at least two accounts
2. At least one account is debited and at least one is credited
3. The total amount debited must be the same as the total amount credited

Question 2

Trade discount (definition & purpose)

Answer 2

A reduction to the list price

To encourage customers to buy in bulk, and to get their patronage and loyalty

Question 3

Cash discount (definition & purpose)

Answer 3

A reduction to the invoiced price

To encourage credit customers to pay early within a specified time

Question 4

Difference between discount allowed and discount received

Answer 4

Discount allowed is given to credit customers for their prompt payment

Discount received is received from credit suppliers for our prompt payment

Question 5

Journal entry
a) Record discount allowed to trade receivables
b) Record cheque received from trade receivables (after discount)

Answer 5

a) Dr - Discount Allowed
Cr - Trade Receivable
b) Dr - Cash at Bank
Cr - Trade Receivable

Question 6

Journal entry
a) Record discount received from trade payables
b) Record cheque paid to trade payables (after discount)

Answer 6

a) Dr - Trade Payable
Cr - Discount Received
b) Dr - Trade Payable
Cr - Cash at Bank