Discounts and VAT Flashcards
What is trade discount?
A percentage discount deducted from the list price of goods.
How are sales and purchases treated with a trade discount?
They are recorded at net of the trade discount.
What is an early settlement discount?
A reduction in the amount payable in return for payment within an agreed period.
How should sales be recorded with an early settlement discount?
Sales should be recorded net of the early settlement discount if customers are expected to take advantage of this discount.
What is VAT?
An indirect tax on the supply of goods and services.
Who bears VAT in full?
The consumer.
How does VAT affect a business?
A business charges VAT on its sales and suffers VAT on its purchases.
What VAT does a VAT registered business actually have to pay?
They only need to pay the net VAT (VAT owed on outputs less VAT suffered on inputs).
What is irrecoverable VAT?
VAT that can not be claimed back so is included in the cost of the assets on the financial statements. Business entertaining and cars are examples of irrecoverable VAT.
How is VAT calculated with a trade discount?
VAT is calculated on the amount after the the trade discount.
How is VAT calculated with a settlement discount?
If a settlement discount is offered, VAT is calculated on the amount that is actually recieved.
