DESKTOP EDITION CLOUD EDITION SERVER EDITION GUIDES FORUM

Valuation of Inventory is at the price before the percentage discount


#1

Example: item is bought for 2000 with 15% discount. closing stock is recorded at 2000 without deducting the discount


#2

Inventory should be valued at the price you paid for it, including any taxes and freight-in costs, not what you will charge for it. In other words, it is recorded at cost, not value. When sold, the difference will be profit or loss.


#3

I am aware of the fact that the value of Inventory is what you pay for it and not at your selling price. What I want to know is When you purchase Inventory and you are given discount, at what price do you set up such inventory in Manager? Example, Item purchased at 1000 with a discount of 10%. In Inventory setup, do we record say our Inventory price is 1000 or 900.(Note that there is a provision for discount when entry is made for Purchase Invoice)


#4

[quote=“Momodu, post:3, topic:2303”]
I am aware of the fact that the value of Inventory is what you pay for it
[/quote] yes it what you paid for that must be the value if it trade discount.
We have cash discount and trade discount. Trade discount is usually a reduction in the per unit price of an inventory soled because the customer bought a lot or is a loyal customer.
Trade discount is simple, just enter the selling price less discount and that it.

Cash discount on the other hand is a Finance policy by the company. For example instant payment of goods bought attract a 5% discount, payment within one week attract 2% discount.
E.g : Mr A bought one stock of item of £100 and paid immediately for 5% discount.
This kind of discount is recorded in the books like this:

In the books of Mr A

Dr: Purchases 100
Cr: Cash. 95
Cr: Discount received 5

In the books of the seller
Dr: Cash 95
Dr: Discount allowed
Cr: sales 100

Now assuming Mr A bargained for a trade discount arriving at £90 for the price of the item and paid immediately.

Cash discount will be £90 x 0.05 = 4.5
Now in the books of Mr A

Dr: Purchases 90
Cr: Cash 85.5
Cr: Discount received 4.5

In the books of seller
Dr: Cash 85.5
Dr: Discount allowed 4.5
Cr: Sales 90
Invoices must show full price and discount price, or clearly show discount offered

Cash discount is an income that we earned or a loss that we made as a result of finance policy and must be reported as gain or loss in the Profit/Loss account.
Now if your situation is cash discount then the value of Inventory is the full price (price without discount deducted) but report discount received or allowed in profit and loss.
I don’t think Manager has Cash discount features now

@lubos please the software must be developed to show the effect or report cash discount, it an accounting principle manager must have