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Cash discount accounting

11 February 2016

hi sir, I am new to business and we are engaged in distribution business. we would like to offer cash discount to our buyers so please guide us how to take this discount given In our accounts. I.e. if I had raised invoice of Rs. 1,00,000/- and if my buyer dealer is giving payment within 7 days then I want to give 2% cash discount to him but if he is paying after offered period he is not liable to get this discount. so how should I generate invoice. in invoice itself I can't deduct that 2% because if he pays late then we can't revise invoice. And if I give discount after generating invoice then I should bare loss of Vat also on that 2%. kindly brief me how I should give cash discount. regards, Snehal Patel

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7 Replies

CA Shree Jain (Chartered Accountant) (1572 Points)
Replied 11 February 2016

You can give the Credit notes after received the payment becuase you dont know vendor when give the payment. So in this case you just pass the credit notes entries in the books of vendor against proper payment of Invoices.. Thanks

CMA Poornima Madhava (CMA) (13097 Points)
Replied 11 February 2016

As I understand, you cannot reverse VAT liability for cash discounts offered. It can be done in case of trade discounts.

For your purpose, you need to raise invoice for the full amount and wherever cash discount benefit is availed by your clients, you can raise credit note for the difference and close the account.

vishnu bhardwaj (Tax Advocate) (212 Points)
Replied 11 February 2016

dear friend,

you give full amount invoice and party give payment on time you generate a credit note of 2% against your party

CA MANISH SAXENA (Partner) (561 Points)
Replied 11 February 2016

Hi Snehal,

All the above sugeestion are in line.But I would suggest that you must consult a professional and ask all your concern as you must focus on bussiness and a Professional will focus on ur issues.Sso u may contact a professioanl for this and all further doubts.

Thanks!

Snehal Patel (19 Points)
Replied 11 February 2016

Thanks a lot to all

Hitesh Khanna (Accounting & Finance Taxation Company Law Audit ) (839 Points)
Replied 11 February 2016

There are two options 1. Discount to b charged on amount exclusive of VAT. I.e don't charge discount on the total invoice amount. Eg 100000 + vat @ 5 % = 105000 Charge discount of 2% on 100000 only.