Page 162 - DCOM101_FINANCIAL_ACCOUNTING_I

Financial Accounting-I

Notes 11. For Discount Provision on Creditors

If a businessman receive some discounts from its customers then the following entries will
be passed:
(a) When provision for discount on creditors is created:
Provision for Discount on Creditors Account Dr.

To Profit and Loss Account

Provision for discount on creditors is deducted from Creditors in the liability side of

Balance Sheet and shown in the Credit side of Profit and Loss Account.
(b) When discount on creditors is written off against the provision:
Discount on Creditors Account Dr.
To Provision for Discount on Creditors Account
12. Goods drawn for personal use: If goods are drawn by the proprietor for the personal use
or domestic purpose, the cost of such goods drawn is deducted from purchase account and
the same is added to his drawings.
The following journal entry will be passed:

Drawing A/c Dr
To Purchase A/c
The amount of such drawings can not be treated as sales, as the goods are not drawn at
selling price.

13. Loss of goods by fire or accidents

(a) Such losses are abnormal losses. Stock destroyed by fire or accidents is credited to the

Trading Account. The following journal entry will be passed:
Loss of stock A/c Dr

To Trading A/c

The loss of stock is closed by transferring the amount to Profit and Loss Account.
(b) If the loss is fully covered by insurance, no portion of the loss is debiting to the Profi t
and Loss Account. The amount due by Insurance Company is shown as an asset in
the Balance Sheet. The following journal entry will be passed:
Insurance Company A/c Dr
To Loss of Stock A/c

(c) If the Insurance Company agrees to pay only a part of the loss, the position of loss
not covered by insurance is debited to Profit and Loss Account and the amount due

by the Insurance Company is shown as an asset in the Balance Sheet. The following
journal entry will be passed:
Insurance Company A/c Dr
Profit and Loss A/c Dr

To Loss of stock A/c

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