Trade and Cash

Discounts
Trade Discounts
- given to encourage orders in large quantities
- Is not journalized

Example:

List price = P17,500

Trade Discount = 20%
Invoice price = ?
List Price P17,500
Less: 20% Trade discount 3,500
Invoice price P14,000

- Accounts receivable 14,000

Sales 14,000
Cash Discounts
- given to encourage prompt payment
- “2/10”, the buyer may avail of a two percent discount if
the invoice is paid within ten days from the invoice date
Example:
List price P17,500
Credit Term “20%, 2/10, n/30”
Invoice Price (17,500x80%) 14,000
Less: 2% cash discount 280
Total amount received 13,720

- Cash 13,720
Sales discount 280
Accounts receivable 14,000
 Recorded as SALE Cash Received

A. 108,000 105, 840

180,000 x 60% 180,000 x 60% x 98%

B. 126,000 126,000
180,000 x 70% 180,000 x 70%

C. 180,000 176,400
180,000 x 98%

D. 144,000 142,560
180,000 x 80% 180,000 x 80% x 99%
 Recorded as SALE Cash Received

E. 108,000 108,000
180,000 x 60% 180,000 x 60%
Transportation Cost
 FOB = “free on board”

FOB Shipping Point, the buyer shoulders the shipping cost

FOB Destination, the seller shoulders the shipping cost

Freight Terms Who Shoulders the Who Pays the
Transportation Cost Shipper

FOB Destination, Freight Prepaid Seller Seller

FOB Shipping Point, Freight Buyer Buyer

Collect
FOB Destination, Freight Collect Seller Buyer

FOB Shipping Point, Freight Buyer Seller

Prepaid
1. 61, 624
224,000 x .7 – 21,000 x .98 + 4000

2. 91,872
(116,000 x .8) x .99

3. 79,420
[(86,000 – 7,000) x .98] + 2000

4. 16,000
[(32,000 x .75) – 9,000] + 1000
5. 160,632
[(237,000 x .8) – 24,000] x .97
 Mon Tue Wed Thu Fri Sat = 7,500
Dec.31

A. Dec. 31 – Salaries expense 5,000

Salaries payable 5,000

Supplie
s
8,090
8,090 – 2,761 = 5329
2,761

B. – Supplies Expense 5,329

Supplies 5,329
 (432,000 / 6 ) x 10/12

C. – Depreciation expense – truck 60,000

Accumulated depreciation – truck 60,000

On Oct. 1, 2015, Calaguas Co. acquired a 3year insurance policy for 36,000
paid in advance.
Asset Method Expense Method

- Prepaid insurance 36,000 - Insurance expense 36,000

Cash 36,000 Cash 36,000

On Dec. 31,2015 three month’s insurance have been consumed, or

insurance expense is equal to 3,000.

- Insurance expense 3,000 - Prepaid insurance 33,000

Prepaid insurance 3,000 Insurance expense 33,000
May 31 – Prepaid Advertising 32,400
Asset method
Cash 32,400

May 31 – Advertising Expense 32,400

Expense Method
Cash 32,400

32,400 x (11/12) = 29,700 expense: 32,400 x (1/12) = 2,700 prepaid

Adjusting Entry

1.A - Advertising expense 29,700 Asset method

Prepaid advertising 29,700

1.B – Prepaid Advertising 2,700

Expense Method
Advertising expense 2,700
 On July 1,2015 Marasigan Company received a P48,000 check for 2 years’
rent paid in advance.
Liability Method Revenue Method
- Cash 48,000 - Cash 48,000
Unearned rent revenue 48,000 Rent Revenue 48,000

On Dec. 31, 2015, six months rent have been earned, or rent revenue
is equal to 12,000

- Unearned rent revenue 12,000 - Rent Revenue 36,000

Rent revenue 12,000 Unearned revenue 36,000