topic3 double entry bookkeeping, settlement discounts and trial balance

Question 1

settlement discounts

Answer 1

-given to encourage customers to pay quickly
-when the customer pays they will not receive the full amount on the invoice as they will get a discount
-pay the supplier the discounted amount
-as well as cash/bank we need to record any settlement discounts given or taken
-discounts received must be posted to the general ledger and receivables or payables ledger account

Question 2

equation to work out the value of the discount

Answer 2

value paid to the supplier x discount%value/100-discount%value

Question 3

VAT and discounts

Answer 3

-trade discounts are always deducted prior to calculating sales tax
-settlement discounts are not deducted prior to calculating sales tax
-VAT is charged on the full value of the invoice
-Various options of processing if a settlement discount is taken up, most straightforward is simply to issue a credit mote for the discount + VAT