Question

The Giles Agency offers a 12% trade discount when providing advertising services of $1,000 or more to its customers. Audrey’s Antiques decides to purchase advertising services of $1,900 (not including the trade discount), while Michael’s Motors purchases only $540 of advertising. Both services are provided on account. Record both transactions for The Giles Agency, accounting for any trade discounts.

Answer 1

Answer:

Please refer the journal entries below

Explanation:

Trade Discount:

There is no accounting entry for the trade discount, trade discount is simply deducted from the total amount and the entry is passed after incorporating the trade discount

1) Audrey’s Antiques

Since Audrey’s Antiques have taken the services amounting more than $1,000, they are eligible for the trade discount of 12% i.e. ( 12% of $1,900) = $228, hence Income will be recorded at ($1,900 - $228) = $ 1,672

Advertising Fee Receivable      Debit      $ 1,672

Advertising Fee Income             Credit     $ 1,672

2) Michael’s Motors

Since Michael’s Motors have taken the services amounting less than $1,000, they are not eligible for the trade discount of 12%

Advertising Fee Receivable      Debit      $ 540

Advertising Fee Income             Credit     $ 540