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Please tell me entry for following bill.
Goods 500
Disc- 10% 50
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Bill Amt 450
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Answer Posted / srn
The treatment of discount depends on whether it is a cash discount or a trade discount. Cash discount is never recorded in the books where as trade discount is. Considering that the aforesaid discount is a trade discount then..
Entry upon booking of Invoice:
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Capital Work-In-Progress [BS] a/c Debit 500
Trade Discount a/c [P&L] Credit 50
Vendor Liability a/c [BS] Credit 450
A withholding tax a/c like TDS Liability a/c and WCT Liability a/c might be involved in the above txn. in which case the these a/cs will credited to the extend of withholding.
Entry when the asset is put to use:
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Fixed Asset a/c [BS] Debit 500
Capital Work-In-Progress a/c [BS] Credit 500
When Payment is made to the vendor:
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Vendor Liability a/c [BS] Debit 450
Bank/Cash a/c [BS] Credit 500
Notes:
Trade Discount is a discount allowed by the seller to the buyer in case of bulk purchases made by him.
Cash Discount is a reduction in the net amount payable by the buyer when prompt payment is made by the buyer.
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