Exercise: Assume the following transactions for Alex stationary shop;

1. January 2, 2012: Purchased merchandise of Br 10,000 for cash

2. January 4, 2012: Purchase merchandise of Br 4,000 on account
3. January 8, 2012: Made another purchase of merchandise costing Br 4,300 of
which Br 3,500 in cash and the remaining on credit.
4. January 10, 2012: Purchase office supplies of Br 2,000 that used for business
operation for an agreement to pay in the near future.
Required: Pass the necessary journal entries for Alex Stationary shop?

Here are the necessary journal entries for Alex Stationary shop:

1. January 2, 2012: Purchased merchandise of Br 10,000 for cash

Cash A/C Dr. 10,000

Purchase A/C Cr. 10,000

2. January 4, 2012: Purchase merchandise of Br 4,000 on account

Purchase A/C Dr. 4,000

Creditor A/C Cr. 4,000

3. January 8, 2012: Made another purchase of merchandise costing Br 4,300 of which Br 3,500 in cash
and the remaining on credit.

Cash A/C Dr. 3,500

Purchase A/C Dr. 800
Creditor A/C Cr. 4,300

4. January 10, 2012: Purchase office supplies of Br 2,000 that used for business operation for an
agreement to pay in the near future.

Office Supplies A/C Dr. 2,000

Creditor A/C Cr. 2,000
Example the following transactions were for ABC merchandising company
1. January 4: Acquired merchandise on account with a 20 % trade discount on
list price of Br 40,000
2. January 14: Also purchased 400 units of merchandise on cash which has a list
price of Br 20 per unit with a trade discount of 10%.
3. January 20: ABC Company also made another purchase of merchandise with a
list price of 30,000 and a trade discount of 20% and 10%.
Required: Find the net price and record purchases made by ABC merchandising
company?
To calculate the net price of merchandise with trade discounts, you need to:
1. Find the total list price by multiplying the quantity by the unit price.
2. Find the trade discount by multiplying the total list price by the trade discount rate.
3. Find the net cost by subtracting the trade discount from the total list price.

For example, let's calculate the net price for ABC merchandising company's purchases:
1. January 4: Acquired merchandise on account with a 20 % trade discount on list price of Br 40,000
- Total list price = 40,000 Br
- Trade discount = 20% x 40,000 Br = 8,000 Br
- Net cost = 40,000 Br - 8,000 Br = 32,000 Br

2. January 14: Also purchased 400 units of merchandise on cash which has a list price of Br 20 per unit
with a trade discount of 10%.
- Total list price = 400 units x Br 20/unit = Br 8,000
- Trade discount = 10% x Br 8,000 = Br 800
- Net cost = Br 8,000 - Br 800 = Br 7,200

3. January 20: ABC Company also made another purchase of merchandise with a list price of 30,000
and a trade discount of 20% and 10%.
- Total list price = Br 30,000
- Trade discount = (20% + (10% of (100%-20%))) x Br 30,000 = Br 6,600
- Net cost = Br 30,000 - Br 6,600 = Br 23,400

Therefore,
The net cost for ABC merchandising company's purchases is:
32,000 + 7,200 +23,400 = **62,600 Birr**.

I hope this helps! Let me know if you have any other questions.

Source: Conversation with Bing, 6/20/2023

(1) What is Trade Discount? | Journal Entry, Examples, Calculator - EDUCBA.
https://www.educba.com/trade-discount/.
(2) Calculate net price factor and net price. - The Story of Mathematics.
https://www.storyofmathematics.com/net-price-factor/.
(3) Trade Discount Explained - ClearTax. https://cleartax.in/s/trade-discount/.
(4) Single Trade Discount: How to calculate net price - YouTube. https://www.youtube.com/watch?
v=07Ce0kyMbzw.
(5) 6.1: Figuring Out the Cost - Discounts (How Much?).
https://math.libretexts.org/Bookshelves/Applied_Mathematics/Business_Math_%28Olivier
%29/06%3A_Marketing_Applications_%28What_Is_It_Going_to_Cost_Me
%29/6.01%3A_Figuring_Out_the_Cost_-_Discounts__%28How_Much%29.