Customer Discount

lmiddleham

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.

Monsoon

Not my strong point, but I believe this is Discounts Allowed and forms part of Cost of Sales.

lmiddleham

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

PGM

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?