1. Discount Day Books

2. Socrative purchases day book quiz.

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

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

5. 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.

6. 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:
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
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.

7. 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%

8. 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
SDB £324

9. 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:
Credit Note: CN45
To: Jon Snow, Lincoln Castle, LN1 4GH
19 Oct X6
Prompt payment discount for early payment of invoice 1234.
£8.10
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 telling her that he’s taken advantage of the 3% discount and that he’s transferred £ 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.

10. 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.

11. 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
SDB £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

12. 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
SDB £324
£324
Discount Allowed
Account Dr
18 Oct
SLCA £8.10
18 Oct
SLCA £314.28
SLCA £9.72 Cr

13. Any Questions on Discount Allowed?

14. Jon’s View

15. 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.

16. 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
PDB £324

17. Ygritte’s Amazing AAT Tuition
Jon Pays Promptly
Sends Ygritte an saying that he’s paid £314.28
Copies in his bookkeeper in on the .
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:
Credit Note: CN45
To: Jon Snow, Lincoln Castle, LN1 4GH
19 Oct X6
Prompt payment discount for early payment of invoice 1234.
20%
Total
Thank you for your prompt payment.

18. 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.

19. 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

20. 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
PDB £324
£324
Discount Received
Account Dr
18 Oct
PLCA £8.10
18 Oct
PLCA £314.28
PLCA £9.72 Cr

21. Jon completes his 30 hours of AAT training

22. Any Questions on Discount Received?

23. 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’

24. Exercises for All Day Books