August 14, 2009
Are sales discounts reported as an expense?
Sales discounts are not reported as an expense. Rather, sales discounts are reported as a reduction of gross sales. In other words, Sales or Gross Sales minus Sales Discounts and Sales Returns and Sales Allowances = Net Sales.
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please are this materials available in spain or malaysia.
Are discount allowed and sales discount same or not? Are discount allowed balance alway at credit side?
Why can’s sales discount be shown as an expense?
Sales discount and discount allowed are the same thing. They are a deduction from the amount due from a sale on credit - usually for prompt payment of an invoice.
The correct treatment is to debit the profit and loss account. DO NOT deduct the discount from the sales in the trading account.
The ledger account is initially debited with the discount allowed. At the end of the financial year the account is closed and the balance transferred to the profit & loss account.
Why can’t the Sales Discount be categorized as an expense item ??? By using an expense account could keep track of how many discounts are actually taken, this might prove to be a useful tool for the business owners to decide if this is a good business practice or not, and also how much income they “lose” from people taking the discount.
While this many not be GAAP Accounting, it seems a more useful method!
By debiting a contra-revenue account Sales Discounts (instead of debiting an expense account), you will have the actual amount of discounts taken. In other words, you get the benefit that you desire either way. The key is having the separate account for the discounts.