Kofi runs a trading business in Accra. He maintains a three-column cash book. On 1 March, he received $500 cash from a credit customer, Mensah, who was entitled to a 2% cash discount for prompt payment.

Which entry correctly records this transaction in the cash book?

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Question

Kofi runs a trading business in Accra. He maintains a three-column cash book. On 1 March, he received $500 cash from a credit customer, Mensah, who was entitled to a 2% cash discount for prompt payment.

Which entry correctly records this transaction in the cash book?

Accepted Answer

Debit: Cash $500, Discount Allowed $10 — Award 1 mark for correctly identifying both the cash receipt of $500 and the discount allowed of $10 (2% of $500 = $10, but the full debt was $510, and $500 was received with $10 discount). B is incorrect — $500 is the amount received, not $490. C is incorrect — discount received relates to payments made to suppliers, not receipts from customers. D is incorrect — the transaction is a cash receipt, not a bank receipt.

Answer

Debit: Cash $500, Discount Allowed $10

Answer

Debit: Cash $500, Discount Received $10

Answer

Debit: Cash $490, Discount Allowed $10

Answer

Debit: Bank $500, Discount Allowed $10

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