Question

3               Purchased chicken and eggs from Josie’s Chicken House,P 6,000 list

price. Terms: Cash less 5% trade discount plus VAT.

is the journal entry for this one this or not??

Purchases					6,000
Input Tax					684
	Accounts Payable					6,384
	Purchase Discount					300

Answer 1

Facts of the Question
Purchases	6000
Less:Discount@5%	300
Net amount	5700
Add: VAT@12%	684
Amount Payable	6384

Solution

There Are 2 types of Discounts Trade Discount & Cash Discount

Trade discount Means

If we purchase goods in Bulk we will be giving a discount called Trade discount and it will be mentioned on Invoice

Cash Discount Means

Cash discount will be given when we pay the bill earlier than given credit period to us. Cash Discount will not be provided on Invoice beacause it will become evident only on Payment.

Accounting Priciple for Discount

Trade discounts will not be recorded in Books of accounts only cash discounts are recorded

Since In our case Discount is Mentioned on the bill and VAT is charged after deducting Discount it is a trade Discount So we should not record this in Books of accounts and Journal Entry Will be as follows

Journal Entry	Debit	Credit
Purchases A/C…………Dr	5700	-
Input Tax (VAT) A/C………..Dr	684	-
To Accounts Payable A/C	-	6384
(Being purchases made vide Invoice Noxxx, and Trade discount received-300)