Accounting Journals:
Gift, Sale, Discount & Carriage Paid By Another

by Jyothi Sethi
(Mumbai, India)

Q: What are the journal entries for the following:

1) Received gift of Rs 51,000 from father-in-law by check, which is deposited into business bank account.

2) Under the instruction of Rajaram, goods invoice is sent to Sitaram worth Rs 10,000 @ 7.5% trade discount. Carriage and transport Rs 8,500 on his behalf.

(Rs = Rupees = Indian currency)

A: Here are the journal entries for those transactions:

1. Debit Bank 51,000
Credit Gift received (income) 51,000

The debit to bank is the simple part of this - money or bank is an asset which increases on the left side, so we debit it. The credit is not so easy. Gifts and donations are generally counted as income, so we credit this account and later in our accounting cycle include it in the income statement as other income.

2. Debit Debtors 9,250
Credit Sales 9,250
(10,000 - (10,000*7.5%))

AND

Debit Debtors 8,500
Credit Bank 8,500

This second transaction is difficult, mainly because the transaction is poorly explained. What is happening here is Rajaram is sending a goods invoice to Sitaram. My understanding of this is that he is sending an invoice to Sitaram so that Sitaram will pay him for goods that Sitaram bought. So for Rajaram it is a sale (a credit sale as there was no payment yet).

Regarding the trade discount, please note that you don't have to record this as a separate entry. Instead you just show the net figure (9,250) after the discount (750).

The 2nd part here (a 3rd transaction) is the carriage, which means transport cost for the goods. From my understanding Rajaram shipped the goods to Sitaram and paid for this on behalf of Sitaram even though it is the expense of Sitaram. So for Rajaram we record that we paid for it (credit to bank) and the debit does not go to the carriage expense but to debtors, as Sitaram owes Rajaram so from Rajaram's point of view Sitaram is a debtor with 8,500 more owing to us.

FYI Sitaram would record the expense in his records, as follows:

Debit Carriage expense 8,500
Credit Creditors 8,500

FYI this is an advanced accounting journal entry so don't worry too much if you had trouble with it - not an easy question. If you had any difficulty with this you are welcome to go over the lessons on basic accounting transactions and double entry accounting, which will help you learn debits and credits.

Good luck!

Best,
Michael Celender

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