Notes For Financial Accounting

Another Notes:Trade DiscountsMerchandisers offer their goods to customers using a catalog where the goods are listed with their prices. The prices are called catalog or list prices. A trade discount, which is a percentage reduction from a published list price, may be granted to certain customers such as dealers or wholesalers for buying frequently and in large quantities. Since a trade discount is granted at the point of sale, this is immediately deducted from the list price and the difference which is called the gross invoice price will be the basis for invoicing and recording.Both the buyer and seller do not record the list prices and the trade discounts in their books of accounts. The buyer records purchases and the seller records sales net of trade discounts.To illustrate: Assume that S Company sold merchandise with a list price of P 100,000 and a trade discount of 15% and 10%. Sales price or invoice price is computed as follows:List priceP 100,000Less: First trade discount (15% x P 100,000)15,000Balance after discountP 85,000Less: Second trade discount (10% x P 85,000)8,500Net sales priceP 76,500Alternative way of computing the invoice price is to multiply the list price by the complements of the trade