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Customer Discount

lmiddlehamlmiddleham Feels At HomeRegistered Posts: 71
Hello

A division I work for has raised a large amount of invoicing at year end.
Contractually, they should pay this on the last working day of the month.

However, an agreement has been rached where they will pay a couple of weeks early.
In exchange for this, we are raising a credit note for them, to compenstate them for the interest they'll miss out on, by paying a large lump of cash to us early.

Under UK GAAP, what is the correct treatment of this credit note. Should it:

a) Debit turnover, reducing our turnover for this year end invoicing
b) Debit interest charges, as a financing cost for obtaining cash early. This will be offset by the interest we'll gain for having the cash a couple of weeks early.

Thanks for your help.

Comments

  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071
    Not my strong point, but I believe this is Discounts Allowed and forms part of Cost of Sales.
  • lmiddlehamlmiddleham Feels At Home Registered Posts: 71
    That is the way most of us were leaning but the group accountant has now advised us to treat as interest paid. No standards have ben quoted though so i dont know the justification
  • PGMPGM Font Of All Knowledge Registered Posts: 1,954
    How do you treat the vat?

    Do you raise the invoice and calculate vat as if the discount will be taken? And I think there was a limit on the discount that can be given?
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