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Dear Mr. Moffat,
I picked up the following from a study text of a reputed provider. Kindly let me know if this is correct.“Trade discounts allowed should be deducted from the gross sales price, so that sales for the period will be reported in the trading account at their invoice value.
For example, Company B sells inventory on credit to Customer A at a gross sale price of $100 and offers a trade discount of 10% to the customer. The double entry for the sale is as follows:
CREDIT Income $90
DEBIT Trade receivables $90”That is correct (and is exactly what I explain in my free lectures on this!).
(As I also explain in the lectures, discounts for early payment are of course treated differently and only accounted for if and when there is early payment.)
This explanation seems totally against my understanding.
From what I know, trade discounts are not recorded in accounts.
Even if so happens in cases where total invoice amount is inclusive of trade discount, deduction is not down to early payment but bulk purchases or regular purchases.
Clarifications please, if any.Trade discounts are not recorded in accounts and that is not what the original question was saying!!!
The gross price was $100. There is a trade discount of $10. Therefore the amount of the invoice is $90 and it is the $90 that is recorded. There is no recording of the discount – all that is recorded is the final amount on the invoice.
That is what the original post said, that is what I confirmed in my reply, and that is correct.
Trade discount has nothing to do with early payment right ?
It is for keeping customers right ?
Cash discount is the one tempting credit customers for early payments right ?Directives please.
So his last statements about debiting and crediting should not hold.
Is that right sir ?
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