Chapter 4 - Preparing financial statements - other considerations

Question 1

What is the double entry for a sales return?

Answer 1

Dr Sales

Cr Cash/ Trade receivables

Question 2

What is the double entry for a purchases return?

Answer 2

Dr Cash/ Trade Payables

Cr Purchases

Question 3

When is a discount recorded on a ledger account?

Answer 3

• The business decides if the customer (or customers in general) will pay in time to receive the discount
• If the business expects the customer to pay in time, then the business records the discount when the sale is made
• If the business DOESN’T expect the customer to pay in time but the customer DOES, then the discount is recorded at the settlement date

Question 4

What is the double entry for a discount given at sales/ purchase date?

Answer 4

For sale:

Dr Cash/ T.R (discounted price)

Cr Sales (discounted price)

For purchase:

Dr Purchases (discounted cost)

Cr Cash/ T.P (discounted cost)

Question 5

What is the double entry given at a sales/ purchase date when the discount is not expected?

Answer 5

For sale:

Dr T.R (full)

Cr Sales (full)

For purchase:

Dr Purchases (full)

Cr T.P (full)

Question 6

What is the (CORRECTION) double entry for a discount (that was not expected) given at settlement date?

Answer 6

For sale:

Dr Cash (discounted price)

Dr Sales (full price - discounted price)

Cr T.R (full)

For purchase:

Dr T.P (full)

Cr Purchases (full price - discounted price)

Cr Cash (discounted price)