Hi everyone, I would like to ask the question that appears in FA1 specimen exam.
Question 50 The following statements relate to the sales ledger control account:
Which of the above statements are correct ?
A. Neither 1 nor 2 B. Both 1 and 2 C. 1 only D. 2 only
Answer provided is A Why Statement 1 is not correct ? Isn't that trade discount will not be recorded in the sales ledger control account ? Seeking for advice.
Trade discounts are given (unconditionally) at the point of sale, so an invoice amount will be net of the discount. As only the net amount is then recorded, the sales ledger control account will not have any entries for trade discounts.
If a settlement discount is offered (i.e. for payment within a specified period), whether or not the customer takes advantage of the discount will only be confirmed when the customer pays. If the customer takes advantage of the discount the double entry is Dr Sales (revenue)/Cr Receivables - i.e. this would be recorded in the sale ledger control a/c.
Trade discounts are simply a reduction in the price of goods sold. For example if goods cost 5000 but the shopkeeper gives me a trade discount of 500 the double entry is DR PURCHASES 4500 CR PAYABLES 4500. Irrecoverable debts are also not recorded in the sales ledger control account. Double entry is DR RECEIVABLES EXPENSE CR RECEIVABLES CONTROL ACCOUNT
