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John Moffat.
John Moffat.-
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accalmz
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Dear sir,
I came across a question asking for statement of financial position based on a lst of trial balances. Among the trial balances provided, a discount allowed with a debit balance is given. And in the answer to the question, it is treated as an expense in the PnL calcuation. I doubt it is correct since discounts allowed can well be trade discounts or cash discounts and only cash discounts allowed should be treated as expenses.
Am I right to question it this way? and In the exam, would the paper be specific about the type of discounts so that we will know the correct treatment?thanks
Liming
John Moffat
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If it was a trade discount, then there would have been entry to the discounts account.
When there is a trade discount, the purchases is recorded net of the discount; Dr Purchases Cr Payables with the net of discount amount.It is only settlement/cash discounts that are recorded separately because they are only entered when the payment is made.
If you watch our free lectures, then all of the above is dealt with in the lectures.
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