Results.—Net Gain $175.40 ; Net Capital $5495.40.
Interest and Discount (Loss and Gain Accounts).
Interest is the sum paid for the use of money or other value; discount is the sum allowed off a note, invoice, or account, for prepayment or for other reasons.
Interest and Discount on notes or loans are posted to Interest and Discount A/c, which is closed into Loss and Gain A/c. Always reckon the amount for the time concerned in the note or loan.
Cash discounts on purchases or sales of merchandise are posted to Merchandise Discount A'c which is closed into Merchandise A/c ; cash discounts might, indeed, be posted direct to Merchandise A/c. Never consider the time element when reckoning cash discounts.
Rule. Make Interest debtor when it is a cost (of use received), and creditor when it is proceeds (of use given). Treat Discount in the same manner.
Interest and Discount—Transactions Journalized.