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Logic behind discounts and purchases

Aaron61Aaron61 Registered Posts: 1
Hi all,

I recently took my mock exam for cash receipts and cash sales, and also for recording purchases. I am studying with Premier Training.

How I passed the 'cash section' was remembering, for cash sales/receipts, the Sales Ledger Control Account and Sales Ledger function as follows: Dr = owed money and Cr = refunded or paid money.

The problem I found, and still do, however, is the logic behind the discounts allowed account - I thought this would have been a credit as we, the company, were essentially 'giving' the discount, but it is a debit. I knew it was a debit as it is an opposite entry to SLCA and SL. But the logic of why it is a debit still evades me unfortunately. Is there a simple way of explaining this?



My next issue was with recording purchases. Again, I understood the logic behind Purchase Ledger Control Account and Purchase Ledger (a Dr is refunded/paid money and a Cr is owed money [the opposite to SLCA/SL]).

The problem is I do not understand why the Purchase Account and Vat Account are Debits? Is this because we, the company, receive the products that we purchased? This would make sense as I know when we record credit sales, we Cr the Sales Account and Vat account as the company effectively created the sale.

From the Purchase Returns Day Book - I know this represents faulty goods sent back from my company. How I passed this section was due to understanding the Purchase Ledger Control Account and Purchase Ledger are debits. This meant the Purchase account and VAT account are credits. Why are they credits though? The logic of why they're credits confuses me.

The problem is also with Discounts Received. From the Discounts Received Day Book, we again note the values as a Dr in both the PL and PLCA as they are refunds to the company. Other than being an opposite entry, why is the Discounts Received Account and Vat account a credit?

Sorry in advance for the long post - I hope it makes sense and I appreciate any help.

Aaron

Comments

  • milescpareviewmilescpareview Registered Posts: 19
    Purchases are when you buy a particular commodity or service. When you purchase, the seller may decide on giving you discounts. A discount is when the seller lets go of a percentage of the sales value often done to make the deal look attractive. There are two kinds of discounts, trade, and cash discounts.
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