Cash discount accounting

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Snehal Patel (Querist)
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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

Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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13 February 2016 In businesses there are two types of discounts allowed - quantity discount and cash discount. Quantity discount is never reflected in the invoice. It is built in. Say if a person orders one gross (12 dozens) of a particular item then the price per piece would be lesser by Rs.2/-. Suppose the item costs Rs.12 per piece. Orders upto 11 dozens would be billed as Rs.1,584 plus VAT while a person ordering one gross would be billed Rs.1,440 plus VAT. Quantity discount is never reflected in the invoice.

Your invoice can contain a term that if the invoice is settled within 7 days of issue a discount of 2% will be granted. Whenever any cash discount is given the following Journal Entry is passed:
Bank Dr. 98
Discount Given Dr. 2
To Debtor 100.

The VAT returns, in all states I think (WB has it), have a column for discounts given and such discounts are deducted from the total sales. Hence your apprehension that you would lose on VAT is discount is given is unfounded.

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