Page 71 - F3 -FA Integrated Workbook STUDENT 2018-19

Returns, discounts and sales tax

2.2 Accounting for discounts – trade discounts

Trade discount is deducted at the point of sale by the seller when preparing the sale
invoice and is NOT accounted for in the accounting records of either the seller or the
purchaser i.e. only the net (discounted) amount will be recorded.

Example 1

Trade discount

Hannah entered into the following transactions:

1 Sold goods to Chris which had a list price of $4,000, and which were
subject to a trade discount of 6%.

2 Purchased goods from Alex which had a list price of $2,500 and which
were subject to a trade discount of 3%.

Required:

For each transaction, state the amount at which it will be recorded in
Hannah’s accounting records.

Solution

1 $3,760 $4,000 × 94%

2 $2,425 $2,500 × 97%

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