Discount Day Books

Socrative purchases day book quiz.

Aims of the Session Discount Allowed Day Book. Processing discount allowed transactions. Discount Received Day Book. Processing discount received transactions.

Prompt Payment/Settlement Discount Offered to encourage customers to pay promptly? Why Cash flow and to improve liquidity.

Jon and Ygritte.... Ygritte’s Amazing AAT Tuition offers extra help for those struggling with their studying. Jon knows nothing about double entry and decides to get some extra help. He books 12 hours of study with Ygritte. Ygritte decides that to encourage her students to pay promptly she will give a 3% discount to those who pay within 14 days of the date of the invoice. She also gives a 25% discount to local business owners, who either want to train their staff or want to learn how to do their own books. Jon owns a dog grooming salon, so Ygritte will give him this as well.

Ygritte’s Amazing AAT Tuition The Invoice Ygritte accepts Jon as a student. She sends him an invoice for the 12 hours of study. Ygritte’s Amazing AAT Tuition Not Lincoln College, 5 Monks Rd, LN2 7HG VAT Registration Number: 398 3877 00 Invoice number: 1234 To: Jon Snow, Lincoln Castle, LN1 4GH 14 Oct X6 30 Hours £12 per hour £360 Less trade discount of 25% £90 £270 VAT @ 20% £54 Total £324 If paid within 14 days of invoice a 3% discount may be deducted, and the amount due will be £314.28 So far same as what’s been learnt before, invoice needs to be checked for accuracy and that what was ordered has been delivered. Ygritte is quite busy & her bookkeeper totals the daybook everyday and posts to the General Ledger and the subsidiary sales’ ledgers daily.

Ygritte’s Sales Day Book Extract SDB21 Date Details Invoice Number Account Code Total VAT * Net 14 Oct X6 Jon Snow’s Dog Salon 1234 SL058 324 54 270 Pyke Fishmongers 1235 SL127 86.40 14.40 72 Lannister Debt Collection Agency 1236 SL179 288 48 240 Totals 698.40 116.4 582 GL1200 GL2200 GL4100 Full amounts are recorded as Ygritte has no way of knowing who will or won’t take advantage of her 3% offer. * VAT at 20%

Ygritte’s Double Entry for Credit Sales Sales Ledger Control Account Sales Account Dr Cr Dr Cr 14 Oct Sales £698.40 & VAT 14 Oct SLCA £582 Dr Cr VAT Account The trade discount is ‘ignored’ in bookkeeping terms, the total amount is entered into the SLCA as a debit, the other side is split into sales income and VAT. The individual sales ledger of Jon Snow is updated too. Jon Snow SL058 Sales Ledger 14 Oct SLCA £116.14 Dr Cr 14 Oct SDB21 £324

The Jon Decides to Pay Promptly Remittance advice is sent notifying the supplier what has been paid. In this case it’s £314.28 The supplier will send a credit note to account for the difference in the SLCA and actual payment. Ygritte’s Amazing AAT Tuition Not Lincoln College, 5 Monks Rd, LN2 7HG VAT Registration Number: 398 3877 00 Credit Note: CN45 To: Jon Snow, Lincoln Castle, LN1 4GH 19 Oct X6 Prompt payment discount for early payment of invoice 1234. £8.10 VAT @ 20% £1.62 Total £9.72 Thank you for your prompt payment. Jon thinks that the 3% discount is rather handy, so pays quickly by bank transfer and sends Ygritte a remittance advice slip via email telling her that he’s taken advantage of the 3% discount and that he’s transferred £314.28 into her bank account. Remittance advice slip will tally with the payment received in the bank account. But this leaves a difference of £9.72.

Ygritte’s Discount Allowed Day Book DABD1 Date Details Credit Note Number Account Code Total VAT * Net 19 Oct X6 Jon Snow’s Dog Salon CN45 SL058 9.72 1.62 8.10 Totals GL1200 GL2200 GL4100 Ygritte creates a credit note to account for the £9.72 & this needs to be recorded in a Discounts Allowed Day Book, as it’s not a sales return, and we don’t adjust the original sales figure. The discount allowed is recorded in the Discount Allowed Day Book, a book of prime entry. So there is a reference for the transaction is auditors come in or HMRC decides to do a VAT inspection. Same as before the day book is totalled and posted to the ledger accounts daily/weekly/monthly... The discount is an expense to the business, so the original sales information is not revised, but a separate account is used the discount allowed account. In this way the discount allowed won’t impact on gross profit, only net.

Ygritte’s Double Entry for the Bank Receipt Sales Ledger Control Account Dr Cr 14 Oct Sales £698.40 & VAT 18 Oct Bank £314.28 Bank Account Dr Cr 18 Oct SLCA £314.28 Jon Snow SL058 Sales Ledger Dr Cr 14 Oct SDB21 £324 The VAT has already been accounted for in the initial entry as has the sales income, so it’s a simple dr bank, credit SLCA to reduce the balance. BUT - The accounts don’t balance. The bank account records the actual amount paid to clear the debt which is £314.28, this is recorded as a dr, then credited to the SLCA to reduce the balance, but the accounts now don’t balance, also we recorded the VAT liability as £54, but the VAT has been reduced as the net has been reduced as well, so we’ll be overpaying HMRC by £1.62 if this isn’t adjusted, this may not sound like a lot, but over a quarter will add up. 18 Oct Bank £314.28 £324 £324

Ygritte’s Double Entry for the Discount Allowed Sales Ledger Control Account Dr Cr Dr Cr 18 Oct SLCA £314.28 Bank Account 14 Oct Sales £698.40 & VAT 18 Oct Bank £314.28 Discounts Allowed £9.72 Bal c/d £374.40 VAT Account Dr 18 Oct SLCA £1.62 £689.40 £689.40 Cr Bal b/d £374.40 14 Oct SLCA £116.14 Jon Snow SL058 Sales Ledger BUT - The accounts don’t balance. The bank account records the actual amount paid to clear the debt which is £314.28, this is recorded as a dr, then credited to the SLCA to reduce the balance, but the accounts now don’t balance, also we recorded the VAT liability as £54, but the VAT has been reduced as the net has been reduced as well, so we’ll be overpaying HMRC by £1.62 if this isn’t adjusted, this may not sound like a lot, but over a quarter will add up. Dr Cr 14 Oct SDB21 £324 £324 Discount Allowed Account Dr 18 Oct SLCA £8.10 18 Oct SLCA £314.28 SLCA £9.72 Cr

Any Questions on Discount Allowed?

Jon’s View

Jon’s Purchases Day Book Extract Jon receives the invoice for £324. He passes this to his bookkeeper, who straight away records it in the Purchases Day Book, and posts to the General Ledger. Purchases Day Book PDB51 Date Details Invoice Number Account Code Total VAT * Net 15 Oct Ygritte’s Amazing AAT Tuition 1234 PL058 324 54 270 Tyrion’s Treats 530 PL836 60 10 50 Totals 384 64 320 GL2350 GL2200 GL5100 Purchases day book updated and the entries are posted to the General Ledger. The bookkeeper doesn’t know if Jon will pay promptly or not, so records the whole amount.

Jon’s Double Entry for Credit Purchases Purchase Ledger Control Account Purchases Account Dr Cr Dr Cr 15 Oct Purchases £384 & VAT 15 Oct PLCA £320 Dr Cr VAT Account Opposite of Ygritte’s the whole amount is recorded, entries are liabilities. Ygritte’s AAT PL058 Purchase Ledger 15 Oct PLCA £64 Dr Cr 15 Oct PDB51 £324

Ygritte’s Amazing AAT Tuition Jon Pays Promptly Sends Ygritte an email saying that he’s paid £314.28 Copies in his bookkeeper in on the email. On 20th Oct X6 he receives a credit note from Ygritte for the £9.72. He passes this to his bookkeeper. Ygritte’s Amazing AAT Tuition Not Lincoln College, 5 Monks Rd, LN2 7HG VAT Registration Number: 398 3877 00 Credit Note: CN45 To: Jon Snow, Lincoln Castle, LN1 4GH 19 Oct X6 Prompt payment discount for early payment of invoice 1234. VAT @ 20% Total Thank you for your prompt payment.

Jon’s Discount Received Day Book DRBD1 Date Details Reference Account Code Total VAT Net 20 Oct X6 Ygritte’s AAT CN45 SL058 9.72 1.62 8.10 Totals GL1200 GL2200 GL4100 Very similar to the discount allowed day book. The discount is treated as an income to the business, and a separate account is used to record them this way it won’t impact on purchases amount.

Jon’s Double Entry for the Bank Payment Purchase Ledger Control Account Dr Cr 18 Oct Bank £314.28 Dr Cr 19 Oct PLCA £314.28 Bank Account 15 Oct Purchases £384 & VAT Dr Cr 15 Oct PLCA £64 VAT Account Ygritte PL058 Purchases Ledger Dr Cr The VAT has already been accounted for in the initial entry as has the sales income, so it’s a simple cr bank, debit PLCA to reduce the balance. BUT - The accounts don’t balance. And the VAT will be out by £1.62 18 Oct Bank £314.28 14 Oct PDB £324 £324 £324

Jon’s Double Entry for the Discount Received Purchase Ledger Control Account Dr Cr Dr Cr 18 Oct PLCA £314.28 Bank Account 18 Oct Bank £314.28 Discounts Received £9.72 & VAT Bal c/d £60 14 Oct Purchases £384 & VAT VAT Account Dr 18 Oct PLCA £1.62 Cr £384 £384 15 Oct PLCA £64 Bal b/d £60 BUT - The accounts don’t balance. The bank account records the actual amount paid to clear the debt which is £314.28, this is recorded as a cr, then debited to the PLCA to reduce the balance, but the accounts now don’t balance, also we recorded the VAT asset as £54, but the net has been reduced the VAT will be too, so we’ll be under paying HMRC by £1.62 if this isn’t adjusted. VAT is credited to increase the liability. Ygritte PL058 Purchases Ledger Dr Cr 15 Oct PDB51 £324 £324 Discount Received Account Dr 18 Oct PLCA £8.10 18 Oct PLCA £314.28 PLCA £9.72 Cr

Jon completes his 30 hours of AAT training

Any Questions on Discount Received?

OR.... The seller does not issue a credit note but puts a written declaration on the invoice, stating that the lower VAT rate is the amount reclaimable from HMRC. HMRC recommends this format: ‘A discount of X% of the full price applies if payments is made within Y days of the invoice date. No credit note will be issued. Following payment you must ensure you have only reclaimed the VAT actually paid’

Exercises for All Day Books