In a manual entry sales day book, do you post the net value of sale item if trade discount is included?

Just wondering whether one would post the net price of the items sold or the subtotal of net price amount minus the trade discount?

This is for AAT Foundation Unit 1 course.

Many thanks

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One Response to “In a manual entry sales day book, do you post the net value of sale item if trade discount is included?”

  1. Craig says:

    No, trade discount ie discount given by say a wholsaler to say a merchant isn’t recorded in any of the books of the supplier or the customer. It is only included on invoices from the supplier so that the customer can see what discount they are receiving as compared to buying the goods normally but it isn’t used for entries.

    If it were cash discount ie that given to a customer by a supplier for prompt payment of it’s debt(s), the supplier would record the pre-discount amount (excluding any vat) as a credit in the sales book, credit the vat amount (if any) to the vat account and debit the total amount of the debt ie what they currently owe before any discount is given, as shown on the invoice, to the customers account. The VAT amount though would be calculated on the amount as if the discount had been applied. ie you would assume that the customer will pay in time and receive the discount.

    When the customer pays, if they pay in time to recieve the discount you would credit the amount they actually pay to their account, credit the amount of the discount they receive to their account (effectively clearing this debt) and debit the cashbook (either cash if they pay cash or bank if by cheque) with what they pay and debit the discount allowed column in the cashbook. This clears the debt and the VAT is already recorded in the vat account so you don’t need to alter it.
    Discounts allowed account is transfered to profit and loss at the year end/period end as an expense since it is an expense to the supplier for ensuring prompt payment. Discounts received are recorded in p&L as negative income ie in brackets as it is a negative expense. But that’s cash discounts lol. Hope this helps.

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