Accounting Journals:
Gift, Sale, Discount & Carriage Paid By Another
by Jyothi Sethi
(Mumbai, India)
Q: What are the journal entries for the following:
1) Received gift of Rs 51,000 from father-in-law by check, which is deposited into business bank account.
2) Under the instruction of Rajaram, goods invoice is sent to Sitaram worth Rs 10,000 @ 7.5% trade discount. Carriage and transport Rs 8,500 on his behalf.
(Rs = Rupees = Indian currency)
A: Here are the journal entries for those transactions:
1. Debit Bank 51,000
Credit Gift received (income) 51,000

2. Debit Debtors 9,250
Credit Sales 9,250
(10,000 - (10,000*7.5%))
AND
Debit Debtors 8,500
Credit Bank 8,500
This second transaction is difficult, mainly because the transaction is poorly explained. What is happening here is Rajaram is sending a goods invoice to Sitaram. My understanding of this is that he is sending an invoice to Sitaram so that Sitaram will pay him for goods that Sitaram bought. So for Rajaram it is a sale (a credit sale as there was no payment yet).
Regarding the trade discount, please note that you don't have to record this as a separate entry. Instead you just show the net figure (9,250) after the discount (750).

FYI Sitaram would record the expense in his records, as follows:
Debit Carriage expense 8,500
Credit Creditors 8,500
FYI this is an advanced accounting journal entry so don't worry too much if you had trouble with it - not an easy question. If you had any difficulty with this you are welcome to go over the lessons on basic accounting transactions and double entry accounting , which will help you learn debits and credits.
Good luck!
Best,
Michael Celender
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