Accounting Cycle : Journal — Important Questions

It is deducted from the list price before recording, so the net price is entered

Step 1: Trade discount is a deduction allowed by the seller to traders/retailers on the list price of goods. Step 2: This discount is deducted BEFORE recording the transaction in the books. Step 3: Both the buyer and seller record the NET amount (List Price – Trade Discount) in their books. Step 4: For example, if list price is ₹15,000 and trade discount is 20%, only ₹12,000 is recorded. Step 5: Since the net figure is directly entered, there is no need to separately record trade discount. Cash discount, on the other hand, IS recorded because it is given at the time of payment.

Credit Transaction – because the name of a person is mentioned

Step 1: The nature of a transaction (cash or credit) is determined by a simple rule. Step 2: If the word 'cash' is explicitly mentioned → Cash Transaction. Step 3: If only the NAME of a person is mentioned (without the word 'cash') → Credit Transaction. Step 4: In this case, 'Mohan' is a person, and cash is not mentioned → Credit Transaction. Step 5: The journal entry will be: Mohan Dr. ₹10,000 | To Sales A/c ₹10,000. If it said 'sold for cash to Mohan', it would be Cash Transaction.

Purchases A/c

Step 1: When the proprietor takes goods for personal use, it is called 'Drawings in Goods'. Step 2: The goods are valued at COST PRICE (not selling price). Step 3: Drawings A/c is DEBITED because the proprietor (receiver) is taking goods from the business. Step 4: Purchases A/c is CREDITED because goods are going OUT of the business at cost price. Step 5: Sales A/c is NOT credited because this is not a sale – no profit is involved. The entry is: Drawings A/c Dr. | To Purchases A/c.

Two or more transactions of similar nature occur on the same date with a common Dr. or Cr. account

Step 1: A compound journal entry combines multiple transactions into one entry. Step 2: This is possible when transactions occur on the SAME DATE and share a COMMON account (either debit or credit side). Step 3: Example: If Trade Expenses ₹1,500 and Rent ₹6,000 are both paid in cash on the same day, instead of two separate entries, one compound entry is made: Trade Expenses A/c Dr. ₹1,500 | Rent A/c Dr. ₹6,000 | To Cash A/c ₹7,500. Step 4: This saves space and reduces the number of entries in the journal. Step 5: The total of debit amounts must always equal the total of credit amounts in a com