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May ask you to explain the recordings when we have early settlement ( cash ) discount, please.
I don’t understand the part with the sales tax.
Without sales tax, it’s clear:
With the sale and invoice:
Dr Purchases 600
Cr TAP 600
10% discount after 10 days and payment…
Dr TAP 600
Cr Cash 540
Cr Discounts received 60but if we have sales tax involved?
In Kaplan study text it is said that the discount changes the sales tax…
And if we have a sale e.g …$600 on credit included 20% sales tax…and 10% discount for payment within 10 days then the sales tax would be not $100 but $90.what would be the recordings?
Thanks a lot.
When we make the sale:
The purchase is for $500 (without sales tax and without discount)
The sales tax is 20% x (500 – 50) = $90
So the total on the invoice will be $590.DR Purchases 500
DR Sales tax 90
CR Payables 590If we pay within 10 days then we will pay them $590 – $50 = $540
DR Payables 590
CR Cash 540
CR Discount received 50(If we don’t pay within 10 days, then we pay the full amount, so…..
DR Payables 590
CR Cash 590Thanks for the answer.I suspected this but i had concerns about the sales tax….
So using a settlement discount we, as a seller and buyer, have a legal way to decrease sales tax owed to the government?Yes.
This is a tax rule. However, it is not in fact such a big deal for two reasons. Firstly, the tax people stop cheating by saying the the discount must be a commercial discount (so they would not allow a great big discount). Also, it will most times only be relevant for businesses selling to other businesses – for them it makes no difference to the tax authorities because what the seller charges, the buyer claims back.
Dear sir
My exam is approching 4 days
Please help
Ann sells good on credit to ben. Ben reseives a 10 % trade disciund from ann. A further 5% settleme t discount if goods are paid for within 14 days. Ben bought goods with price of 200000 from ann
What amount should be included in ann reseivable ledger ?I thought 171000
Answer is 180000
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