5. Returns, discounts and sales tax

Question 1

How do you post a cash purchase return?

Answer 1

Dr cash

Cr purchases

Question 2

How do you post a cash sales return?

Answer 2

Cr cash

Dr sales

Question 3

How do you post a credit purchase return?

Answer 3

Dr payables

Cr purchases

Question 4

How do you post a credit sales return?

Answer 4

Dr sales

Cr receivables

Question 5

1. What is a trade discount?
2. What is a settlement discount?
3. What are the two types of settlement discounts?
4. What is variable consideration?

Answer 5

1. bulk-buying to reduce price.
2. encourage a credit customer to pay faster by offering a discount.
3. discount received: from a supplier (netted from purchase)
   discount allowed: to a customer (reduction in revenue)
4. at the point of recording sales, the supplier does not know whether the customer will utilise the settlement discount.

Question 6

Complete the postings for the following scenarios as a seller….

a) customer not expected to take discount and does not
b) customer not expected to take discount and does

Answer 6

a) Dr cash Cr receivables

b) Dr cash Dr sales Cr receivables

Question 7

Complete the postings for the following scenarios as a seller….

a) customer expected to use discount and does
b) customer expected to use discount and does not

Answer 7

a) Dr cash Cr receivables

b) Dr cash Cr sales Cr receivables

Question 8

Complete the postings for the following scenarios as a buyer….

a) used discount
b) no utilisation of settlement discount

Answer 8

a) Dr payables Cr cash C discount received

b) Dr payables Cr cash

Question 9

1. What is sales tax?
2. What are the types of sales tax? (2)
3. Why is sales tax excluded from the SOPL?

Answer 9

1. A tax on goods purchased and sold.
2. Input tax: tax on goods bought
   Output tax: tax on goods sold.
3. Input tax and output tax are offset against each other, when one exceeds the other, the entity or HMRC pays the difference. Because of this, no cost/income is incurred and that is why it is not included in the PnL.

Question 10

1. How do you post a good with input tax?

2. How would you post a good with output tax?

Answer 10

1. Dr purchases Cr cash/payables Cr tax

2 Dr cash/receivables Cr sales Cr tax

Question 11

How do you post the following scenarios:

a) If you earn more output tax then you pay input tax?
b) If you pay more input tax than you earn output tax?

Why? What is this?

Answer 11

a) Dr tax, Cr cash/payables
This is a refund to HMRC from the entity.
b) Dr cash/receivables, Cr tax
This is a refund from HMRC to the entity.