Discount received are discount on purchases. There are basically two types of discount, which you may receive from your creditors or suppliers.
- This discount is received from your creditors
or suppliers for cash purchases or if your business is classified as a special
classification or group by your creditors or suppliers e.g. trade customers,
retailers, etc. Is received at the time when you purchase items or services
from your creditors or suppliers. This discount is usually deducted from the
purchase price at the time of sale. Only the net cost or purchase price is
reflected and no discounts are physically recorded as a transaction. This
discount will reduce the purchase price of the purchases and consequently your
gross profit will be affected.
If you are a service entity (and you do not generate documents from the stock item code file), your hand written supplier invoices received, will specify this discount.
- Discount received for the early settlement of accounts - This discount is received from your creditors or suppliers at the time of the settlement of their account. Your creditors or suppliers may agree with you that you may receive a certain percentage of discounts e.g. 2½ % if you settle the full amount on a purchase within 30 days). This discount is recorded when you settle the full supplier invoice or your purchase document within the specified time. This discount needs to be entered as an income (other income accounting group) in a Discount Received account and will increase the net profit and will have no effect on the gross profit.