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Answers to questions
Example 2
Continuing with Example 1, suppose that XY also offered a cash discount of 5
per cent for payment within ten days. At the date of purchase,
AB is not certain to pay within the 10 days, so the transaction is entered
ignoring the cash discount (but after adjusting for the trade discount). The
ledger accounts of AB would appear as follows (as before):
Purchases
Dr $ Cr $
01 Jan XY 200
XY
Dr $ Cr $
01 Jan Purchases 200
If the account is not settled within 10 days, the full amount of $200 is payable.
AB took advantage of the discount offered and paid the amount due on 7
January.
Required:
Calculate the amount of cash discount that AB is entitled to and show
the ledger accounts to record settlement of the liability and the discount
received if no separate purchase ledger control account is maintained.
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