URGENT : CREDIT NOTE TREATMENT FOR CEMENT BUSINESS

WE ARE A CEMENT DEALER. OUR SUPPLIER ISSUES INVOICE FOR CEMENT @ 400 PER BAG I.E. OUR PURCHASE PRICE PER BAG IS RS. 400. AND THEN ISSUES "CREDIT NOTE WITH GST" AGAINST VOLUME / TARGET ACHIEVED @ 10 PER BAG.

IT ALSO ISSUES "CREDIT NOTE WITHOUT GST" FOR RATE/PRICE REDUCTION @ 30 PER BAG.

IT IS A GENERAL PRACTICE IN CEMENT BUSINESS.

AND WE SELL CEMENT @ 370 PER BAG.

AS I UNDERSTAND "CREDIT NOTE WITH GST" AGAINST VOLUME / TARGET ACHIEVED ARE TRADE-CREDIT NOTES.

AND "CREDIT NOTE WITHOUT GST" FOR RATE/PRICE REDUCTION ARE COMMERCIAL-CREDIT NOTES.

PLEASE LET ME KNOW, I AM CORRECT OR NOT IN UNDERSTANDING THE TYPE OF CREDIT NOTE ?

IN TALLY, I AM PUTTING BOTH THE CREDIT NOTES AS "DISCOUNT WITH GST" AND "DISCOUNT WITHOUT GST" - UNDER HEAD "INDIRECT INCOME".

IS THIS THE CORRECT ACCOUNTING TREATMENT ?

IN THIS SITUATION, MY GROSS PROFIT IS ALWAYS NEGATIVE (I.E. GROSS LOSS), AS SALES PRICE (370) - PURCHASE PRICE (400) = LOSS (30).

BUT NET PROFIT IS AWAYS POSITIVE [-30 (GL) +10 (DISCOUNT WITH GST) + 30 (DISCOUNT WITHOUT GST) = 30].

IS MY TRADING AND PL OKAY ?

CAN "CREDIT NOTE WITH GST" BE PUT UNDER HEAD "PURCHASES" IN TALLY ?

 

Replies (1)

In Tally:

You have put both under "Indirect Income" as "Discount with GST". This is generally okay if you are treating discounts as income.

Gross profit being negative (sales price<purchase price) is mathematically correct given your numbers (370-400) = 30). 

Net profit being positive due to discounts added back makes sense given your calculation (-30 + 10 +30 = 10). 

Trading and P & L seem okay based on your treatment.

"Credit Note with GST' typically is not put under "PUrchases", It is more related to sales adjustments.

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