In fact the sum of what they paid as well as the discount allowed. Debtors owe the business however less money. The discount allowed therefore do not form part of bank total. The difference between what is received and owed is called discount allowed. What the business thus receive from debtors into the bank account is less than what is owed. As column totals are involved this posting occurs at month end.ĭiscount is allowed to encourage early payment by debtors that owes the business money. According to double entry principle cost of sales should be debited with contra entry trading stock. Thus trading stock is credited as assets decrease on the credit side. When it is sold assets decrease by the cost price. Trading stock belongs to the business before it is sold and is therefore an asset. The cost of sales column is present to track the profit made by considering the value of the original purchase price of trading stock and do not form part of bank total. The contra entry for all these accounts are bank.įinally the non-cash columns cost of sales and discount allowed should be considered: Some will be credited at month end namely column totals such as sales whereas others namely those in sundry accounts such as rent received are credited on the day of transaction. All these accounts that are credited should ad up to the bank amount for the month. Many other accounts will be credited when the double entry principle is applied. Since the amount received during the month is made up of various types of transactions such as sales, rent received, interest received, etc a collective name “total receipts” is used rather than the usual practice of an account name as contra entry. Thus bank account should be debited with the total amount of the bank column in the journal at the end of the month. Furthermore this asset increases as money is received. The purpose of this journal is to record all the transaction where cash ends up in the business bank account.īank is an asset as the money belongs to the business.
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