Accounting help please...

[Bernie]

OK, when it comes to accounting I have very, very limited knowledge so I defer to the experts here.

Here is the scenario:

If one sells a service for say R1000, but for whatever reason you want to give a R300 discount,

1. Do I Invoice out R1000, and show the R300 as a discount (negative) line on the invoice.
Dr Debtors R700
Dr Discount R300
Cr Services Income R1000 Or;

2. Just Invoice out R700
Dr Debtors R700
Cr Services Income R700


What revenue must be recognized, is the discount given an actual expense.

Hope this makes sense.

TIA

 

[Batista]

I would say number 1 because then you have record of the discount, and your books will balance at month end.

 

[KalMaverick]

As far as I know revenue is recognised net of discount.

In any case if you're invoicing something for R1000 but giving a R300 discount you're still only invoicing R700.

 

[PsyWulf]

Number1,you need to keep an eye on every expense/loss of incomewhich includes discounts. If not people could jippo the system and throw a R800 discount on an item and it'll be so much harder to track it down

 

[Shadow9002]

This will actually be determined by the type of discount you give :

If it is a straight discount you give at the date of the transaction it will be :

Dr Debtors R700
CR Services income R700

IF it is a discount they will receive if for example they will pay you back withing the next 30 days then it will be :
Dr Debtors R1000
CR Services income R700
CR Early settlement Discount R300

THen the accounting method will be different for :

IF the debtor pays within the 30 days
If the debtor doesn't pay within the 30 days

 

[TheVMan]

This will actually be determined by the type of discount you give :

If it is a straight discount you give at the date of the transaction it will be :

Dr Debtors R700
CR Services income R700

IF it is a discount they will receive if for example they will pay you back withing the next 30 days then it will be :
Dr Debtors R1000
CR Services income R700
CR Early settlement Discount R300

THen the accounting method will be different for :

IF the debtor pays within the 30 days
If the debtor doesn't pay within the 30 days

This is correct. You only need to show it on your statement if the discount is intended to be refundable.

 

[Dr Who]

Just for clarity the 2 different discounts you described in your OP are:

1) Trade discount, these can be invoiced out at net but its better to invoice gross and ally a trade discount % on the invoice. Accounting software will mark this a trade discount and will only record the R700 in Revenue and debtors. This is good from the point of showing your customer that you gave them a discount but also reducing the amount of processing.

2) Option 2 is an off statement discount ( referred to as back end discount in the trade). This is generally dependent on you granting it and requires double the processing. An example of a common one is a settlement discount should the account be paid within 30 days.

Regards

 

[Bernie]

Thanks all for the responses and clarifications. This is definitely a straight or trade discount as described above so will apply it as such.

 

[ichigo]

Thanks all for the responses and clarifications. This is definitely a straight or trade discount as described above so will apply it as such.

Like others said you always show your discount, I do it in the company I work for also.