semsley your truly evil, i hate the know it alls as well but your tutor seems wrong so it's best you speak with them about it i would do it after class though as they might feel a bit shamed.

Ok, with her attitude - if you want to gain a decent mark you do it her way, but you know your way is right. If it's an external exam you do it your way.

So, she's an "accountant", well we all know anyone can call themselves an "accountant". It also depends on what sort of an "accountant" she is. I doubt she has ever worked in industry or she would know you were correct. If she's just worked in practice it may be she's never come across this as she won't have any experience of dealing with invoices.

I personally know of people who have taught on AAT and HNC courses in college who have never worked in accountancy (and certainly not book-keeping) but have qualifications. 'nuff said.

Kris

If you really want to get something done you need to follow the college complaints procedure which usually goes like this:

First take it up with the lecturer if you receive no satisfaction
Take it to the HOD (Head of Dept) if you are still not satisfied
Take it to the Principal of the College, if still not satisfied
Take it to the awarding body

It is important that teaching like this is challenged because people believe that the person teaching them knows the subject inside out and is correct.  They then go out into the big wide world and maybe advise others incorrectly through no fault of their own or, hopefully, they come on forums (fora??) like this to ask other people who put them right.

Re the VAT question, Quentin posted a good reply yesterday in topic "VAT - early settlement discount" with yet another slant on this.

Kris, I think you just do what the examiner is looking for. Seems to me that exams sometimes take a more simplisitic approach than in real life, sort of letting you build up knowledge in stages. VAT is so complicated, I expect the real learning starts on the job.

Re the tutor, we had a bad one (knew her stuff but lousy teacher) when doing AAT Technician level at college, we did complain but as she was head of dept we didn't get very far and there was no alternative tutor so had to make do. Luck of the draw.


-- Edited by PhilMcTankup on Wednesday 29th of September 2010 10:00:32 AM

Hi,
Talking of Tutors its reminds me of when I was at college in the evening some years ago doing Sage, the tutor use to give us a folder with the work in, briefly tell us what to do (and I mean brief), then go and collect hios daughter from Brownies and then come back for the last half Hour!!!! What a joke! It was quite a few times that he did it!

A

Thats my thinking too. It's a discount for settling the account within x days. I don't believe right now that the terms are as important as the mechanics of it, but she seems to want to tie me up in what to call it rather than what it is.

This might help, this is the email I sent her to prompt the above response:


I know we discussed this tonight at length, but I still dont understand it. I hope I can explain my thought process better in email.

I have checked various manuals I have from my ICB course and a few websites and they seem to be saying the same as I thought. That is that VAT is calculated on the assumption that the customer will take advantage of the cash discount (or prompt payment as HMRC seem to want to call it now).

Meaning if I have a net invoice total of £100 and offer a 10% cash discount for payment within 14 days the VAT will be £15.75 (17.5% of £100-£10) and not £17.50 (17.5% of £100). I know that if they pay within that period the way you showed me tonight and this are equal in final total, but the VAT would appear wrong.

Therefore if I take the exercise 1 from tonight for J Collins, June 7th goods to the value of £80 are sold to D R Edward with a £5 cash discount for payment within 14 days. I would have thought the columns in the Sales Day Book should read:

Net £80
VAT £15.52 (£80 less 3% or £2.40 x 20%)
Gross £95.52

A quick google search on this threw up the following:

http://www.thestudentroom.co.uk/wiki/Revision:A_Level_Accounts_Module_1_-_Features_of_the_VAT_system

http://www.aat-interactive.org.uk/wiki/index.php?title=PLB_(unit_3)_-_How_do_you_calculate_VAT_on_invoices_after_allowing_for_cash_settlement_discount%3F

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&id=HMCE_CL_001596&propertyType=document

I might be getting the wrong end of the stick here, but I dont see where Im going wrong. I hope you can direct me.

Kris

From a practical point of view if your client receives an invoice where discount is given but the supplier doesn't work out the correct vat then just take the percentage from the total, I certainly wouldn't be spending time telling them how to do their bookkeeping.

However I agree that the tutor has this wrong. My understanding of a trade discount would be a discount that is applied to a customers invoice irrespective of when it is paid, it's just normal price less trade discount and vat is applied as normal. Cash discount would be when a discount is offered for prompt payment and therefore it is calculated on the discounted figure whether or not it has been taken. This seems to be how Sage have calculated the example in Phil's posting above and would concur with my understanding too. so Sage is right, the tutor is wrong!

Rob

Just found this

7.3.2 Discounts

The following rules apply if you offer discounts to your customers.

(a) Unconditional discounts

If	And	Then
you offer a customer an unconditional discount	the customer pays the discounted amount	the tax value is based on the discounted amount.

(b) Discounts for prompt payment

If	Then	But
you offer a discount on condition that the customer pays within a specified time	the tax value is based on the discounted amount even if the customer does not take up your offer.	if your terms allow the customer to pay by instalments, the tax value is based on the amount the customer actually pays.

(c) Contingent discounts

If	Then
you offer a discount on condition that something happens later (for example, on condition that the customer buys more from you)	the tax value is based on the full amount paid. If the customer later earns the discount, the tax value is then reduced and you can adjust the amount of tax by issuing a credit note (see paragraph 18.2).

Taken from HMRC
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_001596&propertyType=document#P566_46035

Thanks for that clear explanation Bill.

I wonder if "cash" discount used to describe a prompt or early payment discount is an American convention. I think I may have learned to use it from reading my first Frank Wood text book for ICB L1+2 exams. Just reading FW's Business Accounting 1 now for L3 exam and it is confusing me by referring to stock as inventory, fixed assets as non-current assets, accounts receivable/payable, etc and that's not UK accounting lingo is it?

Just checked an Sage actually calls it "settlement discount", which is what I'm going to call it from now on. No more confusing cash sales with account sales then.

Kris

All you can do is follow the college complaints procedure.

Thanks Sheila,

I won't sit waiting for the phone to ring then...

Phil

kjmcculloch wrote:

---

Thanks for your advice, Sheila.

Spoke to my course tutor today, she said she'll have a word with my lecturer and get it sorted out. I must say though, I am amazed that for an accountant and lecturer she can get something so fundamental so wrong.

How can I now trust anything else she says?

Kris

---

I don't know Kris, I think I would have more faith in her if she had said she would check up on what you were querying.

As I have said accountants don't concern themselves that much with the nuts and bolts of book-keeping and it's only working book-keepers who are undertaking this type of work day in day out who actually know from their experience.  An accountant wouldn't check invoices for example so would not necessarily know how VAT applies to settlement discounts, however, this lecturer should be made aware of her mistake and perhaps, in future, she will check things out before she pronunces them as gospel.

When I was teaching if I was unsure of something or someone queried something I'd said I always told them I would look it up and get back to them the following week.  It is far better and you are far more respected if you own up to not knowing something but promise (and fulfill that promise) to find out.

 

Hi,

Trade discount reduces the goods total amount on an invoice. It is not recorded separately anywhere in the accounting system. Trade discount is a reduction in the cost of goods,owing to the nature of the trading transaction. It usually results from buying good in bulk. It is deducted from the list price of goods sold,to arrive at a final sales figure. There is no separate ledger a/c for trade discount

Cash discount is recorded only when it reduces the amount paid by the business or received by it (discount received/allowed). Cash discount is a reduction in the amount payable in return for immediate payment in cash, or for payment within an agreed period. There are separate ledger accounts for cash discounts: discount allowed and discount received. Whether to take advantage of a cash discount for prompt payment is a matter of financing policy.

VAT is charged on the goods or services total on an invoice net of both trade discount and cash discount. This general principle is carried to the extent that where a discount is offered at the point of sale, VAT is charged on the amount net of the offered discount even where it is subsequently not taken up.

All this is from ICAEW accounting study manual (IAS and UK GAAP) for ACA professional stage. You should show this to your tutor (accountant)...