MEANING OF COMMERCE-1
COMMERCE •
Commerce is the
field of study that deals with business and its operations. • Commerce is
related to purchase and sale of goods and factors related to them. • Commerce
is Trade + Aids to Trade (Auxiliaries to Trade)
Evelyn Thomas:-
"Commercial Occupation deal with the buying and
selling of Goods the Exchange of commodities and the distribution of finished
goods."
Business:
Business refers to those Economic activities which are
connected with production or purchase and sale of goods or supply of service
with the main objective of earning profit.
Trade:
Trade means sale, Transfer or Exchange of goods. It
helps in making the goods produced available to ultimate consumers or users.
|
Business |
|
Industry |
Commerce |
|
|
Primary
Industry |
Trade
|
Aids
to Trade |
|
Secondary
Industry |
Transport
|
|
|
Tertiary
Industry or/and Service Industry |
Banking |
|
|
|
Insurance
|
|
|
|
Warehousing
|
|
|
|
Communication
|
|
|
|
Advertising
|
|
MEANING OF COMMERCE-2
BENEFITS OF COMMERCE
After
10th
Hi guys! Today we will discuss the benefits of
commerce. After doing Matriculation, what we can do in future. There is no need
to worry. I will tell you everything about commerce and what are the benefits
of commerce?
Commerce
|
B.Com • Bachelor in Commerce |
|
B.B.A. • Bachelor of Business
Administration |
|
B.Eco • Bachelor in Economics |
|
B.A.F. • Bachelor in Accountancy
and Finance |
|
B.B.I • Bachelor in Banking and
Insurance |
|
B.F.M • Bachelor in Financial
Market |
|
Professional Courses |
|
C.A.
(Chartered Accountant) |
|
C.S.(Company
Secretary) |
|
C.M.A.
(Cost and Management Accountant) |
|
B.Com
(Bachelor of Commerce) LLB (Bachelor of Law |
|
C.F.A
(Chartered Financial Analyst |
Banking Sector Insurance
Sector Marketing Sector
Diploma in Digital Marketing,
Income Tax Adviser and Many more
MEANING OF BOOK KEEPING 3
·
Meaning:
BOOK KEEPING BOOK KEEPING, ACCOUNTING AND ACCOUNTANCY
•. Book keeping consists of two words Book + Keeping. It means to keep the
books of account to record all the financial transaction. It is not possible
for a person to remember all the transaction. So these transaction have to be
recorded in books in a systematic manner.
fJZe fBPfus ;w/A d"okB ehs/ rJ/ nB/eK ftZsh
b?D^d/DK B{z fe;/ fJe ftnesh d[nkok :kd oZyDk
j?.
n"yk j?. fJjBK ftZsh b?D d/DK dk b/yk oZyD dh
gqfefonk B{z pjh yaksk fejk iKdk
• Definitions:
"Book keeping is an art of recording business
dealings in a set of books." __________ J.R.Batliboi
"Book
Keeping is an art of recording in the books of accounts the monetary aspect of
commercial and financial transactions."_____ Northcott
• Features of Book Keeping:
1. It records the business transactions only.
2. It records only monetary transactions and
non-monetary transactions are ignored.
3. Transactions
are recorded in chronological order.
4. Transactions are recorded in systematic and
scientific manner.
5. Recording the identify transactions in the books of
original entry.
6. Classifying them into ledger.
The Book Keeping function is routine and clerical in
nature and can be performed by person having limited knowledge of accounting.
At present this function increasingly done by computer.
• Accounting Accounting starts where Book Keeping ends
MEANING OF ACCOUNTING 4
• Meaning
ACCOUNTING BOOK KEEPING, ACCOUNTING AND
ACCOUNTANCY. "Accounting is the art of recording, classifying and
summarizing in a significant manner and in terms of money, transactions and
events, which are, in part at least, of financial character and interpreting
the results thereof."_____AICPA
"fJj ftZsh b?D^d/DK
ns/ xNBktK B{z
w[dok d/ o{g ftu fbyD,
;zy/g eoB ns/ Pq/Dh^tzv eoB dh ebk j?. fJ; d[nkok T[jBK d/ BshfinK dh ftnkfynk
ehsh iKdh j?@.
• Features/Characteristics/Attributes
of Accounting:
1. Accounting is an art
as well as science
2. Recording of financial transaction only
3. Recording in terms of money
4. Classifying
5. Summarising
6. Interpreting
7. Communicating
Process:-
Indentifying the business transactions and
events
Measuring the identified transactions and
events
gSkD ehs/ rJ/ b?Dd/DK ns/
xNDktK dk wkg
Recording the business transactions
Classifying the business transactions.
ftt;kfJe b?Dd/DK dh Pq/Dh tzv
Summarising
the business transactions
Analysing the business transactions.
Interpreting the business transactions.
ftt;kfJe b?Dd/DK dh ftnkfynk eoBk
Communicating the interpreted information to
the users.
ftnkfynk ehsh rJh
;{uBK, fJ; dh tos' eoB tkfbnk B{z gqdkB eoBk.
MEANING OF ACCOUNTANCY 5
ACCOUNANCY
BOOK KEEPING,
ACCOUNTING AND ACCOUNTANCY
• Meaning
It refers to a systematic
knowledge of accounting concerned with the principle and techniques which are
applied in accounting. It tell us how prepared the books of account, how to
summarize the accounting information and how to communicate it to the interested
parties.
Accountancy is broad
concept. Book Keeping is the recording branch of accounting. Accounting
includes recording of transactions.
b/ykgkbD
(Accountancy) fJefeZsk j?, fi; ftZu b/ykftXh(Accounting)Pkwb j?. pjhyaksk(Book
Keeping) b/ykftXhdkfjZ;k j?.
• Definition:
“Accountancy is refers to
the entire body of theory and process of accounting,”____Kohler “Every business
enterprise has an accounting system. It is a means of collecting, summarizing,
analyzing and reporting in monetary terms information about the business
transaction.”_____Prof. Robert.N. Anthony.
• Difference between Book Keeping and
Accountancy:
|
Book Keeping |
Accountancy |
|
•
Identifying the transactions of financial nature, measuring it, recording the
measuring transactions and classifying into ledger. •
Book Keeping has a limited scope. •
It provide detail of the daily transactions. •
Book Keeping is clerical in nature and does not requires special skills. •
Book Keeping requires the transactions for Journalising Posting. |
•
It is body of knowledge prescribing certain rules or principles to be
observed while recording, classifying and summarizing of transactions. •
Accountancy has a wider scope. •
Accountancy provides the details of whole year. •
Accountancy is dynamic in nature requires special skill ability to analyses. •
Accountancy requires all the accounting and principle for profit and Loss and
Balance Sheet. |
Difference between Accounting and
Accountancy
|
Accounting |
Accountancy |
|
·
It is concerned
with recording classifying nd summarizing of transaction. ·
It is narrow in
scope. ·
It depends on
book keeping. ·
Its main
function is to ascertain the net results and financial position of the
business and to communicate them to interested parties. |
·
It is the body
of the knowledge prescribing certain rules or principles to be observed while
recording, classifying and summarizing of transactions. ·
It is very much
wider in scope. ·
It depends both on book keeping and
accounting. ·
It includes the
decision making function also on the basis of information provided by book
keeping and accounting. |
BASIC ACCOUNTING TERMS 6
For Students of 10+1
(24)
Basic Accounting Terms
(1) Business
Transaction:
A
business transaction in an economic activity of the business that changes, its
financial position. Whenever any business transaction takes place, it result in
a change in the value of the, liabilities or capital.
Features/Characteristics
of a Business Transaction
1.
It is concerned with money or money's worth of goods or services.
2. It arises out of the transfer or exchange
assets of goods or services.
3.
It brings about a change in the financial position.
4.
It has an effect on accounting equitation.
5.
It has dual aspect or two sides - 'receiving' (Debit) and 'giving' (Credit).
(2)Event
An
event is the result of a transaction.
For
example: Selling price of goods 4,00,000
Cost
price of goods is 3,50,000
Profit = 4,00,000 - 3,50,000 = 50,000
Event is Profit of Rs. 50,000
(2) Account:
"An
account is a ledger record in a summarised of all the transactions that have
taken place with the particular person or things specified". _____Carter
Account is a summarised record of transactions relating to a particular person
or item. It records not only the amount of transaction but also their effect
and direction. The place where such a record is maintain is termed as an
account.
(3) Capital:
Capital is the amount invested by the proprietor in a business enterprise.
Amount may be in the form of cash, goods or assets. It is a liability of the
business towards the proprietor which increases with further investment made in
the business and the amount of profit earned. Capital is also known as Owner's
Equity or Net Worth. It is always equal to assets less liability. It can be
expressed as:
Capital = Assets - Liability
(4) Drawings:
Any cash or
value of goods is run by the owner for personal use or any private payments
made out of business funds are called Drawing.
TYPES OF LIABILITIES 7
For
Students of 10+1
(25)
Liabilities
(d/DdkohnK)
It refers to the amount which the Firm owes (Payable) to outsider when a
firm purchases goods on credit from outsider, the amount owing to outsider is a
liability. "An amount owning by one person (a debtor) to another (a
creditor), payable in money, or in goods or services." Eric L. Kohler
d/DdkohnK T[j oew j[zdh j? i' fJZe ftnesh d[nkok d{;o/ ftnesh d/ o[gJ/
(w[dok) wkb iK ;/tktK d/ o{g ftZu ndkfJrh :'r j[zd/ jB. nkw s"o s/
d/DdkohnK pkjo d/ gZyK B{z gfjbk j' u[ZehnK xNBktK d/ f;ZN/ tZi'A g?dk j'JhnK
ftZsh fizw/tkohnK j[zdhnK jB. tgko dh e[Zb ;zgZsh ftZu'A wkbe B{z SZv e/ d{;o/
;kXBK s'A g?dk ehsk frnk ftZs d/DdkohnK ejkT[Adk j?.
Liabilities = Assets - Capital
fJ; soQK fJZe d/Ddkoh T[j oew j[zdh j? i' fe d{finK s'A wkb iK ;/tktK
T[Xko yaohdD d/ f;ZN/ tZi'A g?dk j[zdh j? ns/ tgko d/ bJh ftZs i[NkT[D d/ bJh
o'eV T[Xko b?D d/ f;ZN/ tZi'A g?dk j[zdh j?. fJ; B{z n;hA j/m fby/ nB[;ko ;q/Dh
pZX eo ;ed/ jK L
Internal Liabilities:
All amounts which a business
entity has to pay the owners are Internal Liability. Such as capital and
accumulated profits.
External Liabilities:
All amounts which a business entity has to pay to outsiders are known as
External Liabilities. Such as creditor, bank over draft, loans etc.
Non Current Liabilities Current Liabilities Contingent Liabilities
(Short-term Liabilities) (Long-term Liabilities)
1. Non Current Liabilities:
fJj d/DdkohnK fJZe ;kb d/ ;w/A
s'A pknd ndkfJrh:'r j[zdhnK jB. fJjBK B{z Fixed Liabilities th fejk iKdk j?.
T[dkjoB d/ s"o s/ Long-terms loans, Debentures etc. 2.
Current Liabilities: fJj d/DdkohnK fJZe ;kb ;w/A s/ nzdo^nzdo ndkfJrh:'r
j[zdhnk jB. T[dkjoB d/ s"o s/ Creditors, Bills Payable, Outstanding
expenses etc. 3.
Contingent Liabilities: fJj T[j d/DdkohnK j[zdhnk jB i' fe GftZy ftZu
ndkfJrh:'r j' th ;edhnK jB ns/ ndkfJrh:'r BjhA th j' ;edhnK. GftZy dhnK xNBktK
jh dZ;DrhnK fe eh n;b ftZu d/Ddkoh j? iK Bjh < T[dkjoB d/ s"o s/ tgko
gqsh ftZsh wkwb/ i' fe ekB{zBh ndkbsK ftZu ftuko nXhB gJ/ jB.
TYPES OF ASSETS 8
For Students of 10+1
(26)
Assets (;zgZshnK)
Assets are the properties
owned by business. They are the economics resources of the business. In other
words anything which enable the firm to get cash or an economic benefit in the
future is an assets. For Example: Land, Building, Machinery, Debtors etc.
Definition given by Prof.
R.N.Anthony "Assets are valuable resources owned by a business which are
acquired at a measurable money cost".
Types of Assets
(1) Non Current Assets:
Those Assets which are held for continued
use in the business for the purpose of producing goods or services and are not
meant for sale. Example of non-current assets are Fixed Assets and Non-Current
Investments.
Fixed Assets:are those Non-Current Assets of a business which are held not to resell but with the purpose to increase its earning capacity. Fixed Assets are further classified into two categories.
a) Tangible Assets:
Tangible
Assets are those Assets which can be seen and touched. In other words which
have a physical existence such as land and building, plant and machinery,
computer, furniture etc.
b) Intangible Assets:
Intangible
Assets are those Assets which do not have a physical existence and thus cannot
be seen or felt. Like, Goodwill, Patents, Copy right, Trade marks, Computer
Software etc.
(2) Current Assets:
Current Assets are those Assets which are
held by the business with the purpose of converting them into cash within one
year. These Assets are also termed as short-lived or Active Assets/Floating
Assets/Circulating Assets.
For
example: Debtors, Stock, Prepaid Expenses etc.
(2) Fictitious
Assets/Nominal Assets:
These Assets which cannot be realised in cash or no further benefit can be derived from these Assets. Such Assets deferred revenue expenditure, discount or loss on issue of debenture.
RECEIPTS AND EXPENDITURE ACCOUNT 9
For Students of 10+1
(27)
Receipts
Receipts is the amount
received or receivable for selling assets, goods or services. Receipts are
further catagorised into revenue receipt and capital receipts.
tgkoe ;z;EK d/ tgko ftZu
fGzB^fGzB ftZsh ;kXBK s'A ftZsh nkte (Financial inflows) j[zd/ jB. fJj tko tko
j D tkb/ (Recurring) iK tko^tko Bk j'D tkb/ (Non Recurring) j' ;ed/ jB. fJjBK
B{z d' fjZf;nK ftZu tzfvnk ik ;edk j?.
1)
Revenue Receipts:
It is the amount received or receivable in the
normal course of business say against sale of goods or rendering or services.
2) Capital Receipts:
It is the amount received or receivable against
transactions which are not revenue in nature.
For Example: Amount received for sale of
machinery, building, furniture etc.
Expenditure
Expenditure is the amount
spent or liability incurred for acquiring assets, goods, or services.
Expenditure may be classified into three categories:-
(1) Capital Expenditure:
It is an expenditure incurred to acquire
assets or increasing the value of a fixed assets. Such Expenditure yield
benefit or a long period.
For
Example: Purchase of Building, Plant, Furniture etc.
(2) Revenue Expenditure:
Any expenditure, the full benefit of which is received during one accounting
period is termed as revenue expenditure. Such as salaries, rent, electricity
charges etc.
(3) Deferred Revenue Expenditure:
There
are certain expenditure which are revenue in nature, but the benefit of which
is likely to be derived over a number of years. The benefit such an
expenditure, generally lasts between three to seven years.
For Example: A firm spent a huge amount Rs. 5,00,000
on Advertising to introduce a new product in the market.
GOODS, PURCHASES, SALES ETC
10
For Students of 10+1
(28)
Goods
Goods include all these
things which are purchased for resale or which are used for producing the
finished products which are also mean to be sold. Thus for a furniture dealer
purchase of Tables and Chairs in terms as goods, while for others it is furniture
as an Assets.
Purchases
The terms purchases is
used for purchase of goods for resale or for producing the finished products
which are also to be sold. The term purchases includes both cash and credit
purchases of Goods.
Purchases Return/Returns Outwards
Goods purchased may be
returned to the Supplier for any reason, say they are defective, are known as
purchases Return. Such returns are also 'termed as returns outwards'.
Sales
Sales means transfer of
ownership of Goods or Services to customers for a price. The term sales
includes both cash and credit sales. The term sales is never used for the sale
of Assets.
For Example; if cloth merchant sells cloth, it
will be termed as sales, but if the same cloth merchant sells old furniture it
will not be termed as sales.
Sales Return/ Returns Inward
Some Customers might
return the goods to them these are termed as sales returns or returns inwards.
Debtors
Those persons or firms to
whom Goods have been Sold or services rendered on credit and payment has not
been received from them. For Examples; Goods sold for Rs. 50,000 to Mohan on
credit. He will continue to remain the debtor of the Business so long as, he
does not make the full payment.
Creditors
Those persons or firms from whom goods have been
purchased or services taken on credit and payment has not been made to them.
For example: If Goods purchased from Ajay for Rs. 40,000 on credit. He will
continue to remain the creditor of the firm so long as, the full payment is not
made to him.
STOCK AND INVENTORY 11
For
Students of 10+1
(29)
Stock/Stock in Trade
Stock includes the value of those goods which are purchased for
reselling and which are lying unsold and the end of accounting period. Stock
may be of two types:
Opening
Stock:
Opening Stock means the value of goods/lying unsold at the beginning of
the accounting period.
Closing
Stock:
Closing Stock the value of goods
lying unhold at the end of the accounting period.
Inventory In case of manufacturer, there can be opening and closing
Inventory as under:
1.
Inventory
of Raw Material:
It includes the Inventory of Raw Materials
purchased for using them in the products manufactured but still lying unused.
For example; the value of cotton in case of cloth mills, is the inventory of
Raw Material.
2.
Inventory of Work-in-Progress:
It is also termed as Inventory of
partly finished goods. It means goods in semi-finished form. Such goods needs
further processing for converting into finished products. In case of cloth
mills, the value of threads and unfinished cloth will be the Inventory of work
in progress.
3. Inventory of Finished Goods:
It
includes the Inventory of those Goods which have been completely processed and
ready for sale but are lying unsold and the end of accounting period. In case
cloth mills, the value of finished cloth will be the value of Inventory of
Finished Goods.
4. Inventory of Stock in Trade:
It includes
the value of those goods, which are purchased for reselling.
Distinction/Difference
between Stock and Inventory
Stock refers only to the value of
those goods, which are purchased for reselling and which are lying unsold at
the end of accounting period. Whereas the Inventory is a wide term which
includes stock also. Thus the inventory includes the following:
i.
Inventory
of Raw Material.
ii.
Inventory
of Semi-Finished Goods.
iii.
Inventory
of Finished Goods. iv. Inventory of Stock.
TYPES OF ACCOUNTS 12
For
Students of 10+1
(30)
Accounts
An account is a record of
all business transactions relating to a particular person or item. In
accounting we keep a separate record of each individual, asset, liability
expense or income.
According to Carter:
"An account is a ledger record in summarised form, of all the transactions
that have taken place with the particular person or things specified."
Personal Accounts
Impersonal Accounts
·
Natural Personal Accounts
Real Accounts
·
Artificial Personal Accounts
Nominal Accounts
·
Representative Personal Accounts
i.
Tangible Real Accounts
ii.
Intangible Real Accounts
(A) Personal
Accounts
The accounts which relate to an Individual,
firm, company or institution are called personal Accounts. Account of Mohan,
Account of X Ltd, Bank Account, Drawling Accounts etc.
(i) Natural personal Accounts:
Accounts
of Natural persons means the accounts of human beings. For example: Mohan's
Account, Sohan's Account, Debtors's Account, Creditors Account etc.
(ii) Artificial Personal Accounts:
Those
accounts do not have physical existence as human beings but they work as
personal accounts. For example any firm's account, any company's account, any
institutions account etc.
(iii) Representative Personal Accounts:
When an
account represents a particulars person or group of person, it is termed
representative personal account. Salary outstanding, Prepaid Rent Account,
Accrued Interest and Unearned Commission etc.
(B) Real
Account :
The
Accounts of all those things whose value can be measured in terms of money and
which are the properties of the business are termed as Real accounts: For
example: Cash Account, Furniture Account, Machinery Account, Goodwill account
etc.
(i)Tangible Real Accounts:
Tangible
real accounts are the accounts of those things which can be touched, felt,
measured, purchased, sold etc. Like: Cash Account, Stock account, Furniture
account, Land account etc.
(ii) Intangible Real Accounts:
Those
accounts represent such things which cannot be touched but of course their
value can be measured in terms of money. Examples are: Goodwill Accounts,
Patents Account, Trade mark account etc.
(C)
Nominal Accounts:
Those
Accounts includes the accounts of all Expenses and Incomes. The Examples of
Nominal accounts relating to Expenses are Salaries Paid, Rent Paid, Discount
allowed etc. The examples of nominal accounts relating to income are commission
received, interest received, discount received etc.
MODERN RULES OF ACCOUNT
Clasgratteco
cAccastunta Accoei 4 as
As&
met■mtkors
Acta
tAtee144.5 Acttwh3 ektatIA - ColikktkatottA `.ate Qu IN DIS 60.
ct(otzvatv-c\tm\ 4 Mad&Ikea/ kaki btiim. t A), ..caattxst k.c4o4A. Cu-v0
Alts8k) (i\tva24tri8 tadtkil,\Js
c_stc.kiemhiz-
Acc.exA4k \tart kLCIA tt‘C.V. LiICX0)1aCe calA %r-° 51)69$41€ CiOshi atkelk‘l
Staa'S SAIMAA VISMSC011A)■-k &§-4-00 %AltileAtSt Ci\JA40351
%ad
zagoRocatisd, Ctkkvi, A0). Lnio\ 3r (i)k.:) avt\ eketit at ciLeivita. Modem dm?
cal kAto_trinA-6
7yext
Actokm-
!Asset
.tests i-ktt\z,kia\kg Acfmqtki
C1)1W
ACCear CbNpak %AttotiC
t2L_____ccouvka
TwAstaAre
ctect` facAsuuve. L "f-LA:TE
°QC-UM&
w
(Auk& LCre-go )t-• Ilichezzia (tit:a)
JOURNAL ENTRIES
(32)
Enter
the following transactions in the Journal of Raj Mohan:
2018
May 1 Raj Mohan Started Business with Cash �
50,000 and Bank Balance � 75,000
May 3 Bought Machinery
from Ajay for � 50,000 by cheque
May 4 Bought goods for
`5,000 from Akash on Credit.
May 5 Goods Sold for
`5,000 on credit to Vijay May 9 Bought goods from Akshay for �
4,000. May 10 Goods Returned by Vijay for � 2,500.
May 11 Bought shares from AB & Co. for �
50,000 paid by Cheque.
May 12 Paid Rent to Ram �
1,000 May 13 Commission Received �
2,000
May 14 Wages Paid to Labourers �
1,000. May 18 Goods Returned to Akshay �
1,500 May 19 Salary Paid � 1,000 to Krishna.
May 22 Amount of Dividend
paid to Ram which was received earlier �
5,000
May 23 Dividend received �
1,000.
Note: Answers of this
assignment will be shown in next notes Number 33.
FORMAT OF JOURNAL
CDS(■{N7 T3k'iMF1■1_
13 -
X01
cy\a.69.
\)Asc7\ coLIA
M010 ‘4,0% (Ate_ ot.rsk
CAtIn j\c_e_outAk. &hclAusaa MaLVI\Acirt el\ CsosNA
?u,hartiheA AccouriNk
C=Ct&N Ac_c_owAIC (Giz.oc% lui\c‘,4404 catkel)
Dh.
j.\c_ctossik. Cael.^
,Ac.c.4)u"Nk_
Y■ia.Alv‘oVokry-1 Ca-gn
AccoLANA.
tati\i• 46.30
CZci_NNA.13\1,0^4\
L
jz,,c-c-ouNr\k To
rv\kktkVsk r4cceivyk y)totz_as e
CaS\e,
7$z, PmAyqrcy, 6-ar,
Y---ecs).1\p2c) ilstrry\k-Ictwocyvi)
70k4
'bEtb■T AV)01.YAI
CSLMT P01001.,11
SA 000
20000
S poo
■O■Obb
1:013000
.c1:), 000
0o0
11:),0ot)
oto
‘01 6-0
000 I ,
) -cf.cDt\ak z3 4UNNA8,
kf3k. S&))< cz.) AW.sAkiv) "ca7L 141-2% 0,09:Q 5?aokkxlcou, k 1ANto --ccr-mcIA -*Q\
Scann
ed with CamScanner
TRADE DISCOUNT AND CASH DISCOUNT
For Students of 10+1
(34)
Discount
It is an allowance given
by the seller of goods out of selling price/list price/catalogue price or a
deduction for making prompt payment.
Discount is of two types:
(1) Trade Discount (T.D.)
(2) Cash Discount (C.D.)
Trade Discount:-
This Discount is allowed
by wholesaler or manufacturer to the retailer at a fixed percentage on the
listed price of goods. It is allowed when goods are purchased in bulk/ large
quantity. This discount is allowed both on credit as well as cash transactions.
No separate entry is passed for the Trade discount, as it is deducted from the
cash memo or invoice of the goods.
Cash Discount
This Discount is allowed
to the customer for making prompt/quick/early payment. In other words, Cash
Discount is allowed only if the customer makes the payment within a fixed
period. Such Discount motivates the customers to make the payment at the
earliest. The entry for Cash Discount is recorded along with the entry for
payment. Discount is nominal account. It is debited when it is allowed to a
customer and credited when it is received.
Difference between Trade Discount and
Cash Discount
|
Trade Discount |
Cash Discount |
|
This
Discount is allowed by wholesaler or manufacturer to the retailer at a fixed
percentage on the listed price of goods. |
This
Discount is allowed to the customer for making prompt/quick/early payment or
within a fixed period. |
|
It
is allowed when goods are purchased in a specified quantity. |
It
is allowed when payment is made on or before a specified date. |
|
It
is not recorded separately in the books of account. |
It
is recorded separately in the books of account. |
|
It
is deducted from the invoice. |
It
is not deducted from the invoice. |
|
It
encourage to quantity. |
It
encourage quick payment. |
