C1 - section 10. Discounts Flashcards
What are discounts?
Discounts are a reduction to the price of the sales of goods or service. There are different types of discounts offered for different reasons.
What are the 3 types of discount?
- Trade discount.
- Bulk buy discount.
- Prompt payment discount.
define ‘Trade discount’.
A trade discount is a definite amount that is deducted from the list price of the goods for the supplies to some customers. The intention is to encourage customer loyalty and repeat business.
where will you find a trade discount recorded?
Trade discounts are recorded on the invoice, before the VAT is calculated.
Trade discount rates should be double checked and it should be agreed it is the right percentage prior to sending the invoice.
Bulk discount definition
A bulk discount is similar to a trade discount in that it is deducted from the list price of goods and disclosed on the invoice. However a bulk discount is applied when a customer buys over a certain quantity of a product.
The deduction is calculated prior to the calculation of VAT.
What are prompt payment discounts?
Prompt payment discounts are offered to encourage faster payment.
Details of the discount will be at the bottom of the invoice.
It is down to the customer to decide on whether to use the discount or not.
Prompt payment discounts are taken off the total amount charged, and as such it will effect both the VAT paid and the amount of goods paid.
VAT calculations and discounts.
Both bulk discounts and trade discounts are taken off the list price of goods or service provided.
Prompt payment discounts are calculated off the total including VAT and as such the amount of VAT paid and the cost of goods sold will be adjusted to allow for the discount if the customer takes advantage of it.
