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"
Ask the Tutor ACCA FA
Accounting for trade discounts allowed
9y ago#1That 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.)
9y ago#2Trade 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.
9y ago#3Trade discounts are nothing to do with early payment.
The amount of the invoice (after discount) is $90.
Therefore we debit receivables and credit sales with $90 as usual when there is a sale on credit.
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