Another Settlement Discount Question

SmileyPSmileyP New MemberPosts: 7Registered
I can't seem to find somewhere were the following is stated:

If a credit note is raised for a paid invoice that a settlement discount was taken, what values are on the credit note?

EG

3% discount

Invoice for 100 Net 19.40 Vat 119.40 Total.
Paid with discount 97 net 19.40 vat 116.40 total.

If a credit is raised, let's say for 50%, does it read:

50 net, 9.70 Vat 59.70 Total
OR
48.50 net 9.70 vat 58.20 Total?

The second makes most sense as that truly reflects the value of the credit. Otherwise they would deliberately over order, return items and then get double discount when the credit note has the non-discounted figures on it?

OR

Do you send a non-discounted credit note (£59.70 total) which they must discount? That doesn't make much sense in my mind.

Anyone can help?!

Comments

  • AbelAbel Feels At Home Posts: 46Registered
    "The second makes most sense as that truly reflects the value of the credit".
    I am not too sure about this since i dont really understand the question that well. But by looking at the numbers i agree with what you said. The second one makes more sense if you look at numbers
  • SmileyPSmileyP New Member Posts: 7Registered
    The scenario is essentially what values do you put on the credit note for a paid discounted invoice....
  • AbelAbel Feels At Home Posts: 46Registered
    I get it now. And im sticking to my old answer. I think the second one is the right one since the credit note it's for the invoice for which the settlement discount has already been taken away. Also reminds me that our teacher once said that if you have a settlement or trade discounts you have to take care of them first. Like, for example VAT. You calculate it after the discounts have been taken away. So my opinion is that "48.50 net 9.70 vat 58.20 Total" is right
  • lakshlaksh New Member Posts: 20Registered
    Hi Smiley P

    Credit note calculations takes exactly the same format as the invoice. The trade discounts and settlement discounts should be reduced from the net values before VAT calculations. So, my answer is second one.Total=Gross+VAT(58.20=48.50+9.70)
  • lakshlaksh New Member Posts: 20Registered
    Hi Smiley P,

    Sorry for the wrong formula..Its Total=Net+VAT
  • SmileyPSmileyP New Member Posts: 7Registered
    I seem to be getting different ideas depending on who I talk to now.

    I have had some say:

    The credit must match the original invoice.
    You wouldn't issue a credit, you would issue a payment.

    However, I have seen payments made and then credits received subsequently - and why not on an active customer account as you will expect further orders from them.

    So, the discounted invoice was paid for 116.40 - paid quickly to get the discount.

    Can a credit be raised for 50% of its value?
    Is it correct that the credit note will read 50 NET or 48.50 NET?
    Is it more correct to issue a payment for the (now) overpayment?
    Should the credit note read 50 NET but have a note saying 1.50 of it has already been taken so it matches the original invoice???

    I've been sitting looking at T accounts trying to work it out various ways and I am getting myself in a muddle.

    Maybe this is more of a theoretical situation, but one I believe is perfectly likey. Can't find ANYTHING written with this situation. I can now see the arguements for both sides, I just find it hard to think that anyhting other than £48.50 NET would be any good - after all, you would loose out if it was £50 NET on the credit.

    Going a bit mad here....
  • SmileyPSmileyP New Member Posts: 7Registered
    Also I wanted to thank you guys for responding so far! I was talking it over with some colleagues and they didn't even seem to be sure...
  • AbelAbel Feels At Home Posts: 46Registered
    "I have had some say:

    The credit must match the original invoice.
    You wouldn't issue a credit, you would issue a payment."

    If you took the settlement discount for the original invoice then it should be the same figures on the credit note. I mean, making the credit note after the innitial invoice without considering the discount which you clearly took away from the original figures would be like making a credit note for a different invoice, since the figures will be totally different.
    My suggestion is that if you are unsure and want a certain answer, post this thread on the Advanced/lvl 3 forum. This is just the Foundation/Lvl 2 forum so I'm afraid this question is a bit confusing for us too.
  • coojeecoojee Experienced Mentor Posts: 794Registered
    The credit note must be for the undiscounted amount (£50) and then you adjust for the discount when the credit note is used/paid. If you make the credit note out for £48.50 then you won't cancel out the original discount taken when the invoice was paid, you'll still have £3 sat there and you should only have £1.50.
  • JaffasGirlJaffasGirl Trusted Regular Posts: 387Registered
    Coojee, just out of interest, would it not be possible to have a credit note for £50 and then have underneath £1.50 being taken off for discount taken, and they the total of the credit note would be £48.50 as
    Per the actually amount of credit 'taken' so to speak, so you would just debit/credit the relevant accounts when posting the credit note.

    I have no practical experience of this, but that's what my brain said..lol or would this be something not on the credit note, but just done in house..
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