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- When the owner of the business withdraws goods or cash from the business for his personal use, a Drawing Account is opened in the books for the same.
- This account is called Personal Account.
- The thing in which the trader trades is called goods. This is a real (material) account.
- When a trader charges less than the full price of that item from his customers. So it is called exemption or deduction.
- The discount given by the trader increases his sales.
- It is called a trade discount. Its rate is different for different traders.
- This discount is given at the rate of a certain percentage of the selling price.
- It is not accounted for in the books. This reduces the number of sales.
- Example- Sold goods worth Rs.5000 to Saddam and gave him 10% business discount, in this transaction Rs.500 will be deducted from Rs.5000. And Rs 4500 will be accounted for in the books.
- This discount is given by the trader to get early payment from the debtors. Its account is written in books.
- Similarly, if a merchant pays his creditors in full on time, he receives a cash discount.
- If the trader receives a cash discount then there is profit for the business and if he gives a cash discount then there is a loss for the business.
- This is a nominal account only.
- When the debtor of a merchant becomes insolvent and the amount not received is called bad debt.
- This is a loss for the merchant.
- The amount which is not received will debit from the bad debt account with the same amount and credited to the personal account of the debtor.
- Bad debts account is a nominal account.
- When the owner of the business takes out goods or money from the business to meet his personal needs, it is called drawing.
- When goods are bought in business to produce a particular item, it is called raw material.
- The goods remaining unsold at the end of the previous financial year are called opening stock.
- The goods that remain unsold at the end of a financial year are called closing stock.
- Those to whom we sell goods on credit are called trade debtors.
- Those from whom we buy goods on credit are called trade creditors.
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