Discounts Allowed/Recieved on an Income Statement

pirate

Hi there

I did the revision course yesterday for DFS and one of the topics was were to put certain expsenses ie in Admin or Distribution etc

two of the expenses mentioned were Discount Allowed and Discount received both of which are attributable to Admin Expenses apparently. Obviously one is credited to expenses

I always thought that Discounts REceived were income and therefore when caluclating the revenue you would
Reveue-returns inwards+discounts received

and the Discounts allowed were an expense to the business

Can anyone tell me where I should put these discounts
and if there is a piece of documentation anywhere with it written on it.

Many thanks

blobbyh

It's fair to say there are valid reasons why discounts allowed could either belong both before or after gross profit.

Before gross profit (part of cost of sales):
If you consider that a discount allowed is either directly (or even indirectly) attributable to selling a product - and you wish to show the net revenue - then you could put it before gross profit. This is where we choose to put it in our own accounts.

After gross profit (part of overheads):
Alternately, you could subscribe that although the above is correct, the cost of the discount given is actually administrative in nature and technically part of the credit control process.

I know this doesn't really answer your question, but where the AAT tell you to put them and where they actually sit in real world accounting are subjective and businesses will choose their own methods.

As for discounts received, assuming these were granted by the supplier as part and parcel of buying stock, I would put these in the cost of sales calculation to work out the net purchases.

pirate

Hi Robert

thanks so much for that you have totally answered my question

very grateful,

Karen

majo

Hi there,

Discount received is not added on revenue. This is because its not earned directly on goods sold. It is treated as other revenue after gross profit.
Discount allowed is debatable because some treat it as a selling and distribution cost where as others as an administrative cost.
In my view, its under selling and distribution costs.