Cash Discount Method

So, the discount in the sales and purchase invoices are cash discount right? Not trade discount? If it’s cash discount, then the method used is net since discount automatically deduct to the original price. If so, what entries should i make when discount is not taken.

A discount on a sales or purchase invoice is a discount, with no distinction between cash or trade, whatever you might mean by those terms. The discount is a reduction of the selling price charged by the seller, irrespective of anything else.

Please don’t double post your questions in different topics.

Discounts in sales & purchase invoices are trade discounts, not subject to payment terms…
Cash discounts are only applicable when the actual payments are made and are processed as part of the Receive & Spend Money - these are generally noted as part of the payment terms.

i don’t know but as far as i know trade discount is a discount to facilitate bulk sales while cash discount facilitates prompt payment.

What we have there in Manager helps to enter trade discounts. For cash discount create an expanse account called cash discount and involve it during the receive money or spend money. In receive money, enter a negative figure for the cash discount which will reduce the amount the customer or payer is paying. Do same for spend money.

What I did was create an expense account called "Cash Discounts Account"
And then I created a Non-inventory Item called “Cash Discount” using the earlier created Cash Discount Account as it account.

When I have to use cash discount, I just go to items and select it. I use same account in payment and receipt so the account increases by discount suffered and decreases by discount gained.

There is a difference between cash and trade discount. Trade discount can be a price per unit reduction or extra free quantities for buying in bulk, which technically or mathematically is the same as price reduction.

Cash Discounts are however usually a reward for paying debt earlier. Eg. ‘Payment within the first two days attracts a discount of 4%’.
Because it involves financial management decisions, it has to be disclosed in financial statements. This is how it done in my country. Trade discounts are not reported.

My point, @kmca, was that no matter what you call it–cash or trade–a discount on an invoice is a reduction of price. The reason I wrote “whatever you call it,” is that terminology is not applied uniformly. In fact, your first post explicitly asked for confirmation that such a discount is a cash discount. As most people use the term, it is not. That was the source of my uncertainty. Your second post suggests you actually use the term as @Brucanna and @Abeiku have suggested. Assuming you do, their posts should answer your question.

manger does not show reports on the various discounts and there is no column to enter discount on cash sales. that is my observation and i do not know if i am right.

If you list discounts as line items and assign them to a special expense account you create for that purpose, you can track how much you’ve given away as discounts. There are no other reports. And you are correct that there is no discount column on cash receipts.

is trade discount not applicable to cash sales/purchases?

For Cash Sales/Purchases, to track discounts you need to enter them via Add a line and use a Discount Allowed account

@lubos could you pay attention with this discount matter ? If we want to use the invoice like the discount column instead of manually created a discount allowed line, it would be better if we can see the discount journal generated automatically by the system.

Sales & Purchase Discount Simplified

Record Discount:

  1. Only for inventory item
  2. Only if you use periodic inventory system
  3. Only if it is cash discount

Don’t Record Discount:

  1. If you use perpetual inventory system, simply record the discounted price
  2. If it is trade discount
  3. For non-inventory items like fixed assets, simply record the discounted price

What point are you trying to make, @Abu_Hasan?

Typically, discounts are of two types.

  1. Trade Discount
  2. Cash Discount

Generally, Trade Discount is not recorded as discount.
If we purchase or sell with trade discount, we should simply record the discounted price.

Cash discount has to be recorded as discount.
And it only applies for inventory items.
For fixed assets or expensed item, we don’t need to record discount. We simply record the discounted price.

For perpetual inventory system, discounting method is different.

This thing I learned from online. If I am wrong, I would be happy to learn the right thing.

@Abu_Hasan I disagree, the cash discount is always an option. It a gain the company can make or ignore, to the seller, it a loss that depends on the action of the buyer. I strongly believe it must be reported whether on fixed asset or no in the year it is made. Trade discount will however just be deducted from purchase price and that it.

I also don’t agree it applies to only inventory.
Let say for your electricity supplier brings a bill of $1,000.00, but the term is ‘Payment within 7 days attract 5% discount’ you will have to treat this like a usual cash discount if you make payment within 7 days because it a gain due to a finance decision.

Why discount journal is important to you? So you can see on profit & loss statement how much in discounts have been given?

Yes, it’s a common thing in accounting when you create a discount it’ll be recorded so you will know the proportion of discount been given. And we can use the % column in the invoice as well.

for classroom presentation purposes. I’m a student.