Please explain about Purchases Discounts and Purchases Returns and Allowances. Please indicate the purpose of these...

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Accounting

Please explain about Purchases Discounts and Purchases Returnsand Allowances. Please indicate the purpose of these accounts. Dothey appear on the Financial Statements?
2. Please explain about Sales Discounts. Why are they necessary?Does this account appear on the Financial Statements?
3. How are sales to customers using credit cards recorded?
4. Please create an example of an Income Statement for amerchandising business.

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Answer 1 Discounts For the purpose of accounting discounts are a Trade Discount Trade discount is normally received or allowed on bulk purchaseWe do not have to put any journal entry in the books of accounts for trade discount When we receive or allow any trade discount while purchasing or selling goods we simply deduct the amount of trade discount and balance amount is recorded Suppose MrX purchased goods worth 10000 and received a trade discount of 10 on it Then in the books of account of MrX we will record 10000 10 of 10000 9000 as purchase ie we will debit the purchase account by 9000 and credit the cash account if purchased in cash or respective creditor account if purchased in creditWe will give a narration where we have to mention the details of trade discount ie the rate of trade discount and the amount on which such discount is received The journal entry should be Purchase Account Dr 9000 To Cash Creditor Account 9000 Being goods purchased in cashcredit and received a trade discount of 10 on 10000 Trade Discount do not appear in the financial statements We do not create any ledger for this discount nor we pass any journal entry for such amount of discount so the question of appearing in the financial statements do not appear However if in question it is not mentioned whether it is a trade discount or cash discount we will always assume it to be a cash discount b Cash See Answer

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