A seller sold merchandise which has a list price of $4,000 on account, giving a

Question

A seller sold merchandise which has a list price of $4,000 on account, giving a trade discount of 20 percent. The entry on the books of the seller is:

(a) Debit: Accounts Receivable 3,200 Debit:Trade Discounts 800 Credit:Sales 4,000.

(b) Debit: Accounts Receivable 4,000 Credit: Sales 4,000.

(c) Debit: Accounts Receivable 3,200 Credit: Trade Discounts 800 Credit: Sales 4,000.

(d) Debit: Accounts Receivable 3,200 Credit: Sales 3,200.

(a) Debit: Accounts Receivable 3,200 Debit:Trade Discounts 800 Credit:Sales 4,000.

(b) Debit: Accounts Receivable 4,000 Credit: Sales 4,000.

(c) Debit: Accounts Receivable 3,200 Credit: Trade Discounts 800 Credit: Sales 4,000.

(d) Debit: Accounts Receivable 3,200 Credit: Sales 3,200.

Explanation / Answer

Trade discounts are not recorded in accounts. No entry is passed for trade discounts. Thus, sale is shown at the amount which comes after deducting trade discount. Thus, the correct option is Option D, Debit: Accounts Receivable 3,200 Credit: Sales 3,200.

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