Question

Virgil made a sale on credit at a list price of £10,000, an amount which was then subject to trade discount of 10%. In addition, settlement discount of 5% was available to the customer if they paid within 14 days of receipt of invoice. At the point the sale, Virgil did not believe that the customer would take advantage of the early settlement discount terms.

What accounting entries would Virgil make in the nominal ledger to record this transaction (Ignore VAT)?

Answer 1

Virgil's nominal ledger would show a debit to Trade Receivables and a credit to Sales Revenue for the amount of £9,000, reflecting the sale price after a 10% trade discount and excluding the early payment settlement discount.

Step-by-step explanation:

When Virgil makes a sale on credit at a list price of £10,000 and applies a trade discount of 10%, he would need to make the following accounting entries in the nominal ledger, assuming that the settlement discount will not be taken:

• Debit the Trade Receivables (Debtors) account with the amount after the trade discount, which is £9,000 (£10,000 less 10%).
• Credit the Sales Revenue account with the same amount of £9,000 to record the sale at the discounted price.

These entries ensure that the sale is recorded at the amount expected to be received, and that the potential settlement discount is not recognized upfront since Virgil does not believe the customer will take advantage of the early payment terms. If the customer were to pay early and claim the 5% settlement discount, further adjustments would need to be made at that time.