BA1: Settlement Discounts
Chan110
Registered Posts: 17 Dedicated contributor 🦉
Hi,
Have re-read this topic and the examples in the books several times and I just cannot get my head around how it works.
For argument sake, let me explain simply what I understand:
1. To calculate invoice with Trade+Settlement discount
- Total NET price : Qty x Unit Price = (A)
- Trade Discount : (A) x %Tdiscount = (B)
- NEW NET price : (A) - (B) = (C)
- Settlement Discount : (C) x %Sdiscount = (D)
- FINAL NET price = (C) - (D) = (E)
- VAT : (E) x %VAT = (F)
- INVOICE total : (C) + (F) = (G)
So, Customer would pay (G) - (D) if within settlement period, else pay (G).
But, why INVOICE total = (C)+(F)=(G)?!!!
Shouldn't the invoice be:
VAT : (C) x %VAT = (F1) and therefore invoice = (C) + (F1)?
And if customer pays within settlement period, then they pay:
VAT : (E) x %VAT = (F2) and invoice = (E) + (F2)?
Or is this how's its always been done and we just have to live with it?
Pls help, I am tearing my hear out on just this topic area for days!:confused1:
Have re-read this topic and the examples in the books several times and I just cannot get my head around how it works.
For argument sake, let me explain simply what I understand:
1. To calculate invoice with Trade+Settlement discount
- Total NET price : Qty x Unit Price = (A)
- Trade Discount : (A) x %Tdiscount = (B)
- NEW NET price : (A) - (B) = (C)
- Settlement Discount : (C) x %Sdiscount = (D)
- FINAL NET price = (C) - (D) = (E)
- VAT : (E) x %VAT = (F)
- INVOICE total : (C) + (F) = (G)
So, Customer would pay (G) - (D) if within settlement period, else pay (G).
But, why INVOICE total = (C)+(F)=(G)?!!!
Shouldn't the invoice be:
VAT : (C) x %VAT = (F1) and therefore invoice = (C) + (F1)?
And if customer pays within settlement period, then they pay:
VAT : (E) x %VAT = (F2) and invoice = (E) + (F2)?
Or is this how's its always been done and we just have to live with it?
Pls help, I am tearing my hear out on just this topic area for days!:confused1:
0
Comments
-
It's just the way it's done I'm afraid.
For the sake of VAT, HMRC assumes the settlement discount will be taken, hence always charging the lower amount of VAT.0 -
Thks Sarah,
That makes perfect sense now!
I will just have to remember that's the way it is...and there is no logical answer to why.0
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