How to perform accounting for cash discount
In the daily operation and management of enterprises, in order to encourage buyers to pay their bills quickly, they usually give a certain cash discount. What should we do when we enjoy cash discount?
Accounting entry enjoying cash discount
When selling goods on credit:
Debit: accounts receivable
Credit: main business income
? ? ? Taxes payable - VAT (sales tax)
When obtaining funds:
Debit: bank deposit
Financial expenses (actual cash discount amount)
Credit: accounts receivable
What is cash discount?
Cash discount refers to the preferential discount given by the enterprise creditor to encourage the debt manager to pay within the period specified by law. For example, 2/10, net 30 (2/10, net 30) means that if the buyer pays within 10 days, he can get 2% discount from the invoice value. Otherwise, the full amount of the invoice shall be paid within 30 days. Moreover, it is often noted or understood that the interest expense will increase after the 30 day credit period.
Cash discount is expressed as "discount rate/payment term".
Difference between cash discount and commercial discount
① Different purposes. Cash discount is a debt deduction to encourage customers to pay in advance; A trade discount is a price deduction given to promote sales.
② The discount occurs at different times. The cash discount occurs after the sale of goods. The enterprise cannot determine the relevant cash discount when recognizing the sales revenue. Whether the cash discount occurs after the sale depends on the payment of the buyer; The trade discount occurs at the time of sales. When an enterprise realizes sales, it only needs to recognize the sales revenue based on the net amount after deducting the trade discount, without accounting treatment.
What are financial expenses?
Financial expenses refer to the expenses incurred by an enterprise to raise funds for production and operation. Specific items include: net interest expense (the difference between interest expense and interest income), net exchange loss (the difference between exchange loss and exchange income), service charges of financial institutions and other expenses incurred in raising production and operation funds.