Accounting for credit transactions, VAT and discounts Definitions Flashcards
What are Cash transactions?
These are goods or services that are provided and paid for immediately, by cash or other methods.
What are Credit transactions?
These are goods or services that are provided along with an invoice that will specify when the payment is due. Credit terms can differ and are usually by prior agreement, following credit checks.
What is the difference between a Cash transaction and a Credit transaction?
Cash transactions are paid for immediately whereas credit transactions are paid for at a later date, which is specified on an invoice as credit terms (an invoice is only sent if it is a credit transaction).
What are the three different types of discounts?
Trade discount, Bulk discount and Prompt Payment discount.
What is VAT?
VAT (Value Added Tax) is the tax you have to pay when buying goods or services. The current rate is at 20%.
What is a Trade discount?
A definite amount deducted from the list price of the goods for the supplies to some customers. This discount is intended to encourage and reward customer loyalty. It is usually disclosed on the invoice.
What is a Bulk discount?
A definite amount deducted from the list price of the goods, but only will be allowed if the sale order is above a certain quantity. It is also disclosed on the invoice.
What is a Prompt Payment discount?
This is a discount offered to customers in order to encourage them to pay invoices early.
