Three Column Cash Book Reasons for Granting Discounts

WEEK THREE AND FOUR DATE ………………

TOPIC: Three Column Cash Book

CONTENT

• Reductions – Definition, Sorts, Options
• Causes for Granting Reductions
• Variations Between Commerce Reductions and Money Reductions
• Classification on Money Reductions
• The Three Column Money Guide

Three Column Money Guide

The sort of Money Guide mix low cost column on each sideto the money and financial institution column. The reductions allowed column is on the debit aspect, whereas the reductions obtained column is on the credit score aspect. The precept of double entry can be relevant within the three column Money Guide. It should be famous nevertheless that the low cost allowed and the low cost obtained columns although they’ve the looks of account columns, are merely memoranda, from them we are able to receive periodic totals that will likely be entered within the reductions accounts.

Reductions

That is the discount within the value of products given by a dealer to his buyer so as to encourage bulk purchases or immediate fee

Varieties of Reductions

1. Commerce Reductions: That is the low cost given by a dealer to encourage his prospects to purchase in bulk i.e. in giant portions[mediator_tech]
2. Money Reductions:That is the low cost given by a dealer to encourage his prospects to settle their accounts promptly

Causes for Granting Reductions

1. To encourage prospects to purchase in bulk i.e. in giant portions
2. To encourage immediate settlement of account
3. To keep away from (cut back) the chance of unhealthy money owed
4. To permit the customer to have a margin for his personal revenue
5. To keep away from tying down of enterprise capital
6. Reductions appeal to prospects
7. Reductions encourage steady patronage by loyal prospects
8. Reductions will increase the gross sales or turnover of a enterprise

Distinction between Commerce Reductions and Money Reductions

Commerce Reductions Money Reductions

1. Given to encourage bulk purchases Given to encourage immediate settlement of account
2. Commerce low cost is recorded within the journals Money low cost is recorded within the ledger

(daybooks)

1. Commerce low cost is unconditional Money low cost is conditional: fee should be made

withina specified time period

1. Commerce low cost should be deducted earlier than money Money low cost is deducted after commerce low cost has

low cost been deducted

Classification of Cash Discounts

1. Reductions Allowed: That is the low cost a enterprise permits its credit score prospects (debtors) after they pay their accounts inside a set time. That is an expense of the enterprise as it’s the price of having money owed settled promptly
2. Reductions Received: That is the low cost a enterprise receives from its credit score suppliers (collectors) when it pays their accounts inside a set time. That is an revenue of the enterprise as it’s the profit obtained from settling money owed promptly. It is very important notice that low cost obtained doesn’t contain the receipt of cash: the provider merely accepts much less cash in settlement of the account

EVALUATION

1. Sate 4 options of every of the next (a) Commerce Reductions (b) Money Reductions[mediator_tech]
2. Listing 5 explanation why a dealer will grant low cost to his prospects

Illustration

From the next info write up a 3 column Money Guide of Favour Enterprise Enterprises steadiness off on the finish of the month, and present the related reductions accounts as they would seem within the common ledger:

2016

March 1 Stability introduced ahead:

Money in hand N21,100

Money at financial institution N89,840

” 2 We paid every of the next accounts by cheque, in every case we deducted 5%

money low cost: T. Ankrah N8,000; C. Asafo N26,000; D. Kodjo N44,000

” 4 C. Talabi pays us a cheque for N9,800

” 6 Money gross sales paid direct into the financial institution N14,900

” 7 Paid insurance coverage by money N6,500

” 9 The next individuals paid us the next accounts by cheque, in every case they

deducted a reduction of two%: R. Dambo N16,000; J. Apiah N6,400; R. Andrah N5,200

” 12 Paid motor bills by Money N10,000

” 18 Money gross sales N98,000

” 21 Paid salaries by cheque N12,000

” 23 Paid lease by money N6,000

” 28 Obtained a cheque for N50,000 being a mortgage from R.Atadika

” 31 Paid for stationery by cheque N8,700

Favour Enterprise Enterprises

Cash Book

Basic Ledger

Reductions Allowed

2016 N 2016 N

Mar 31 Complete for the month 690

Reductions Obtained

2016 N 2016 N[mediator_tech]

Mar 31 Complete for the month 3,900

N.B: Word that the low cost columns within the Money Guide are totaled and never balanced. They’re to be added weekly or month-to-month on the time the money and financial institution columns are balanced and dominated off. the totals of the low cost columns are taken to the reductions accounts within the ledger and are entered on the identical sides of those accounts as they’re discovered within the Money Guide

EVALUATION

1. Enterprise Accounting 1 Train 13.1, 13.2, 13.4A and 13.5A
2. Simplified and Amplified Monetary Accounting Train 2x; 5; 6x and 7x

GENERAL EVALUATION QUESTIONS

1. Differentiate between Reductions Allowed and Reductions Obtained
2. State 4 variations betweenTrade Reductions and Money Reductions
3. Listing two similarities between Reductions Allowed and Reductions Obtained
4. State ten makes use of of the Basic Journal
5. Listing ten ledger accounts which have debit balances

WEEKEND ASSIGNMENT

1. Through which of the next books will commerce low cost be recorded A. Money ebook B. Basic Ledger C. Invoices D. Purchases Day Guide
2. When low cost is allowed the accounting entry is debit low cost allowed account and credit score A. Bills Account B. Suspense account C. Debtors Account D. Collectors account
3. The method of coming into transaction from one ebook to a different is A. folio B. casting C. posting D. numbering
4. The column which isn’t usually balanced however summed up within the three column money ebook is the ___________ column A. financial institution B. money C. contra D. low cost
5. When each debit and credit score entries in respect of a transaction are made in the identical ledger account that is A. a ledger entry B. an accounting entry C. a folio entry D. a contra entry

THEORY

1. State 5 explanation why a dealer will grant commerce low cost to his buyer
2. State 4 variations between commerce reductions and money reductions