For business promotion, company distributes free samples to customers.
Free distributed is promotion or advertisement.
To know the taste and/or quality, free samples are distributed.
It provides information to management to improve the quality of the product.
Sometimes, organization can provide goods for charity, religious purpose and social service (flood affected, tsunami, earthquake etc).
When goods are distributed as free samples or charity, it is deducted from purchase goods because it decreases purchased goods.
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Goods Given or Distributed
Free sample (advertisement) account Charity account To Purchase account (Being- goods distributed or given as…) |
Dr Dr
|
Goods distributed as free sample Goods given as charity Value of goods |
Increase in expenses Increase in expenses Decrease in assets |
Journal Entry
In the book of …………
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
Free sample (advertisement) account Charity account To Purchase account (Being- goods distributed or given as ………) |
Dr Dr |
|
xxxx xxxx
|
xxxx |
PROBLEM: 20
SL Traders has following extracted transactions:
Goods worth Rs 15,000 are given as charity.
Goods distributed as free sample Rs 20,000.
Goods worth Rs 2,500 given free of cost to friend
Goods worth Rs 4,000 given to construction of temple.
Required: Journal entries
SOLUTION:
Journal Entry for American Style
Date |
|
|
Debit $ |
Credit $ |
(a) |
Charity account Purchase account To record goods given as charity |
|
15,000
|
15,000
|
Journal Entry for European Style
Date |
|
|
|
€ |
€ |
(a) |
Charity account Purchase account To record goods given as charity |
Dr
|
|
15,000
|
15,000
|
Journal Entries
In the book of SL Traders
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
a |
Charity account To Purchase account (Being- goods given as charity) |
Dr |
|
15,000
|
15,000
|
b |
Free sample (advertisement) account To Purchase account (Being- goods distributes as free sample) |
Dr |
|
20,000
|
20,000
|
c |
Drawings account To Purchase account (Being- goods given to friend free of cost) |
Dr |
|
2,500
|
2,500
|
d |
Charity account To Purchase account (Being- goods given as to temple construction) |
Dr |
|
4,000
|
4,000
|
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PROBLEMS AND ANSWERS |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
Basic Problem: 20 GOODS DISTRIBUTED AS FREE SAMPLE
SK Traders has following extracted transactions:
Goods worth Rs 5,000 are given as charity.
Goods distributed as free sample Rs 10,000.
Goods worth Rs 1,000 given free of cost to friend
Goods worth Rs 5,000 given to construction of temple.
Required: Journal entries
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