There are many differences between trade and cash discounts. A trade discount is used to encourage more sales whereas a cash discount is used to encourage prompt payment of invoices.
The bank transaction journal entries below act as a quick reference, and set out the most commonly encountered situations when dealing with the double entry posting of banking transactions. In each case the journal entries show the debit and credit account together with a brief narrative.
When a business undertakes import trade with overseas suppliers and makes payment in a foreign currency it needs to try and protect itself from fluctuations in the currency exchange rate. One method of achieving this is to buy the foreign currency using a currency forward contract.
When a business undertakes export trade with overseas customers and receives payment in a foreign currency it needs to try and protect itself from fluctuations in the exchange rate. One method of achieving this is to sell the foreign currency using a foreign exchange forward contract.
When a business trades overseas either importing from suppliers or exporting to customers, the transactions are normally conducted in a foreign currency. Since the business reports in a different currency it must reflect any exchange gain or loss when accounting for foreign currency transactions.
The accruals and cash basis of accounting are two different methods of preparing financial statements. A business can calculate information relating to cash receipts and payments from it’s accrual based accounting system using accrual to cash conversion formulas.