THE TREBLE CASH BOOK CASH DISCOUNTS Before learning

THE TREBLE CASH BOOK

CASH DISCOUNTS Before learning how to use the Treble Cash Book first we have to understand the meaning of cash discounts.

Cash discounts (continued) If a firm wishes to encourage its clients to pay quicker it may offer a reduction of the amount payable if clients pay within a set period of time.

Cash discounts (continued) The discount amount is often expressed as a % of the full amount due. Example: An invoice of € 400 has a cash discount of 4% if paid within a week. The client will therefore pay € 400 – (€ 400 X 4/100) = € 384

Cash discounts (continued) A discount given by a firm to its client is called a …. DISCOUNT ALLOWED

Cash discounts (continued) A discount received by a firm from its supplier is called a …. . DISCOUNT RECEIVED

Cash discounts (continued) Discount Allowed (Example) John Borg owes our firm € 100 for stock sold to him. We offer a cash discount of 5% to clients who pay within two weeks. John pays his debt on time. The accounting entries to record these transactions are….

Cash discounts (continued)

Cash discounts (continued) Discount Received (Example) Our firm has purchased € 450 worth of stock from WB Ltd on credit. According to the payment terms a discount of 2% is given to clients who settle within 1 week from the invoice date. We settle on time. The accounting entries to record this are……

Cash discounts (continued)

Cash discounts (continued) The treatment of discounts in the financial statements Discounts Allowed are an expense for the firm and the balance on the Disounts Allowed a/c is posted to SOPL*. It is included with the other business expenses. Discounts Received are a revenue for the firm and the balance on the Discounts Received a/c is posted to the SOPL*. It is added to Gross Profit. *(Statement of Profit or Loss)

Cash discounts (continued) STATEMENT OF PROFIT OR LOSS (extract) € GROSS PROFIT € XXX ADD REVENUES COMMISSION RECEIVED XXX DISOUNTS RECEIVED XXX TOTAL REVENUE XXX LESS EXPENSES DISCOUNTS ALLOWED XXX FUEL XXX NET PROFIT XXX

TRADE DISCOUNTS Trade Discounts are different from cash discounts ! These are discounts offered by one business to another business that trades in the same products. The aim is to encourage a client firm to keep buying its supplies from the supplier firm. The amount of the trade discount depends on the number of products purchased by the client. Trade discounts are shown ONLY as a deduction on the invoice and will not be shown in the accounting records.

THE TREBLE CASH BOOK …. USED TO RECORD BANK/CASH TRANSACTIONS INVOLVING DISCOUNTS

The Treble Cash Book This is similar to the two column cash book but we include a column for discounts allowed on the debit side and a column for discounts received on the credit side.

The Treble Cash Book (continued) Points to note when posting transactions involving the Treble Cash Book: o o To complete the double entry in the personal account of the trade payable or trade receivable we enter both the actual payment and the discount amount. Both “Discount” columns in the cash book serve as a memorandum (a note). At the end of the month the totals of both columns will be posted to the Discounts Allowed a/c (debit side) and the Discounts Received a/c (credit side).

The Treble Cash Book (continued) A SIMPLE WORKED EXAMPLE

END OF LESSON