Discounts

In this lesson

1. 0:00 Introduction to discounts
2. 0:18 Trade discounts vs settlement discounts
3. 1:08 Accounting for trade discounts
4. 2:32 Early settlement discounts received
5. 4:18 Worked example: discount received
6. 6:41 Early settlement discounts allowed
7. 8:17 Worked examples: discount allowed

About this lesson

Understanding the distinction is crucial because they're recorded in completely different ways in your financial statements, and getting this wrong will cost you marks in your exams. Trade discounts are straightforward. When a company offers a discount for bulk purchases, you record the transaction net of the discount—the discount itself never appears in the accounts. Whether you're buying or selling, only the discounted amount is recognised. Early settlement discounts are more complex because the accounting treatment depends on whether you're receiving or giving the discount, and critically, on whether you expect the discount to actually be taken. When receiving an early settlement discount from suppliers, you initially record the full purchase price, then adjust only if the discount is actually claimed. When giving an early settlement discount to customers, your approach hinges on expectation: if you expect them to pay early, treat it like a trade discount and record the sale net of the discount; if you don't expect them to take it, record the full amount and adjust only if they surprise you by claiming it. This lesson walks you through worked examples of each scenario so you can see exactly how the double entries work and when discounts appear (or don't) in your statement of profit or loss.

Duration: 13m