Accounting Opinion About Cash Discounts and Trade Discounts

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Written Accounting Opinion – INTERNAL DOCUMENT ONLY Prepared by: Group 6 Date: Client name: ABC Retailing Pty. Ltd. 30 April, 2012 Year end: 30 June, 2012 Mr. Williams Prepared for (name of supervisor): 4 weeks Time spent on this opinion: Accounting What type of opinion Auditing Ethics Other (specify): US GAAP AASB IFRS for SME / Differential √ (select options)? IFRS Accounting Standards √ applied: √ Reporting Standards Query or issue: W hether the debit-balance account “Cash Discounts” in the Statement of Comprehensive Income should be treated the same way as the “Trade Discounts” account. Background and pertinent facts: Trade discount is allowed by the supplier of the goods to the purchaser when he buys from the supplier in bulk quantities. The purchaser is accountable for the invoice price which is the list price less the trade discount. Whereas, cash discount (also known as sales discount) is a decrease granted by supplier from the invoice price of the goods in order to encourage prompt payment. Authoritative Guidance and Research: AASB 101 Presentation of Financial Statements (AASB 101.34) IAS 18 Revenue (IAS 18.10) http://www.e-conomic.co.uk/accountingsystem/glossary/cash-discount http://www.letslearnfinance.com/difference-between-cash-and-trade-discount.html http://accountingexplained.com/financial/receivables/cash-discount-on-sales http://basiccollegeaccounting.com/2008/08/summary-of-difference-between-cash-discount-and-tr ade-discount/ Discussion and Analysis: Trade discount is given before the exchange happens; therefore, sales should be recorded after the deduction of such trade discounts. The amount recorded as sales revenue is the invoice price and there is no entry in the books of the account for trade discount. Unlike trade discount, cash discount is

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