Page 63 - Microsoft Word - 00 - Prelims.docx

Returns, discounts and sales tax

When settlement discount is offered to a customer, the seller must estimate the
amount of revenue that will probably be received. If the customer is expected to take
advantage of the settlement discount offered, the sale invoice should be prepared
having deducted settlement discount in the same way as trade discount. If the
customer subsequently does not make early settlement, the full amount is due and
the additional amount received is accounted for as additional revenue.

If the customer is not expected to take advantage of the settlement discount offered,
the sale invoice should be prepared without deducting the settlement discount. If the
customer subsequently does make early settlement, the discount is accounted for as
a reduction in revenue (not as an expense).

Revenue recognition is considered in more detail in Chapter 15 of this Integrated
Workbook.

Tutor notes guidance – discussion points

Ensure that students understand how to deal with settlement discount

(chapter 5 of the Study Text) – in particular, determination of the revenue
receivable and how this may need to be adjusted. TYU 3 in chapter 5 could be
used for this

57