Entries (2) and (3) are usually combined in one as follows:

Entry (4) is known as a compound entry. If entry (2), which is the part involving cash, is made in the cash book, then the additional entry (3) will have to be made in the general journal because there is no cash element in it and theoretically nothing but cash should be recorded in the cash book.

Handling Discounts in the Cash Book.—This recording in two separate places of what is really one transaction has led to the introduction into the cash book of a non-cash column in order to bring the whole transaction together. The customer’s payment being a receipt of cash, the record must be made on the debit side of the cash book. Reference to entry (4) shows that Sales Discount is also a “debit.” Where the cash book is limited strictly to cash transactions, the cash debit record shows only the “credit” element of the entry. The use of a Sales Discount column on the debit side of the cash book for the sake of making a complete record in one place thus introduces an extraneous element, one out of harmony with the other entries made there. In posting, great care must be exercised not to transfer Sales Discount to the credit side of its ledger account but to the debit side.

Alternative Treatment for Cash Discounts.—Sometimes another treatment of sales and purchase discounts in the cash book is met with. This treatment for sales discount is based on the fiction that the full amount of the original charge is received from the customer and that an immediate return is made to him of the amount of the discount. To use the example cited on [page 155], the entries would be:

showing receipt of the full invoice price and therefore full credit to the customer; and

representing the fictitious payment in cash of a discount on sales of $2. In the cash book these two entries would appear as follows: