Reference no: EM132706103

Michael Kairu runs a general groceries shop in Mombasa. The following transactions relate to the shop for the month of June 2012.

June   Transactions

1. Cash in hand sh. 31,400; bank balance shs. 50,800, capital account, shs 82,200
2. Bought goods in cash for shs. 8,200
3. Purchased goods on credit from Muiruri Enterprises for shs. 11,600 less 10% trade discount.
4. Sold goods on credit to Mugwa and Sons at sh. 17,800 less 20% trade discount.
5. Withdrew cash from the bank amounting to shs. 1,000 for private use
6. Sold goods on credit to Eric at shs. 12,800
7. Paid sh. 10,000 in cash to Muiruri Enterprises in full settlement of their account.
8. Received sh. 8000 in cash from Eric in part settlement of his account.
9. Goods worth sh. 800 were returned by Eric
10. Purchased goods on credit at shs. 17,400 from Felixan ltd.
11. Paid sh. 12,000 to Felixan Ltd. by cheque; discount allowed shs. 600
12. Purchased furniture on credit from Pendo Langu furnitures for shs. 16,000
13. Transferred shs. 4,400 from the cash till to the bank account.
14. Eric was declared bankrupt and could only pay shs. 2,000 of the remaining debt in respect of goods supplied to him from the shop. He paid sh. 2014 and the rest was treated as a bad debt.
15. Goods worth shs. 1200 were returned to Felixan Ltd.
16. Goods worth shs. 800 were taken by Michael Kairu for his personal use.
17. Paid shs. 1,000 by cheque for advertising
18. Paid wages to shop assistant in cash amounting to Kshs,3,600
19. Made cash sales of shs. 43,600
20. Banked sh. 40,000
21. Received shs. 11,800 in cash from Mugwa & Sons in part payment of their account after allowing a discount of shs. 200

Required:

Question i. Record the above transaction in the appropriate books of original (including a three column cash book)

Question ii. Post the account to relevant ledger account

Question iii. Extract a trial balance as at 30th June 2012.

Question iv. Explain the difference between a 'cash discount' and a 'trade discount'

Question v. Explain how cash discounts and trade discounts are treated in the books of account.