Accounting Opinion About Cash Discounts and Trade Discounts

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Written Accounting Opinion – INTERNAL DOCUMENT ONLY
Prepared by: Client name: Group 6 ABC Retailing Pty. Ltd. Date: Year end: Mr. Williams 4 weeks Accounting √ IFRS √ US GAAP AASB IFRS for SME / Differential Reporting Standards Auditing Ethics Other (specify): 30 April, 2012 30 June, 2012

Prepared for (name of supervisor): Time spent on this opinion: What type of opinion (select options)? Accounting Standards applied: Query or issue:

Whether 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 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, the amount recorded as sales revenue is the invoice price. Hence, there is no entry in the books of the account. Sales should be recorded after the deduction of such trade discounts. Unlike trade discount, cash discount is allowed on the payment of money after the invoice is made by the supplier; therefore, the cash discount is not shown on the invoice. In order to indicate the difference of amount between the sales revenue and the cash...
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