Also, yet another clue: as you can see from Sage's nominal codes, the code for the "discount allowed" is in the 4000s, the Sales section, whereas the code for "discount taken" is (I think) probably in the 5000s, the Purchases section.
Blimey Rob....did you swallow an accounts book? lol Well done though, very comprehensive answer. Yes, discount taken is 5009 in my Sage.
Edit: Just a quick note on how Sage treats discounts allowed and received (or taken). As Rob said, discounts allowed are usually deducted from GP in the P & L account, but as Sage's COA cannot do this it shows it as a debit to n/c 4010 thus as a deduction from sales, and a similar scenario with regard to discounts taken, whereas normally this would show as an expense. It could be a good idea to show these separately in the COA so that the accountants can make the relative adjustments at year end.
Pauline
-- Edited by Stardoe on Monday 1st of October 2012 05:47:55 PM
Hi, I need to record in the bank a payment from a customer for an existing invoice and for the fact that they have taken a 3 percent discount. Should I create a credit note under their customer record and use the company sales nominal code or should I be using discounts allowed or discounts taken nominal codes?
There are two types of discount (as you have noted), but they are different things in the accounts.
A "discount allowed" is where the firm has "allowed a discount", i.e. offered a discount, hence to a customer; since the firm loses money, it is treated as an expense. A "discount taken" is in the opposite "direction"; it is a discount allowed by a firm's supplier to that firm, i.e. a discount the firm has taken (or "received"), hence from a supplier; since this is to the benefit of the firm, it is treated as income. As you can see from your circumstance described, one of your options is therefore to use a "discount allowed"; a "discount taken" is not correct for this situation.
Another clue as to which one to use: a firm's accounts should always be from the point of view of that firm. You said the the "they [the customer] have taken a 3 percent discount", i.e. it is a "discount taken" from the customer's point of view, and so must be a "discount allowed" from your point of view.
Also, yet another clue: as you can see from Sage's nominal codes, the code for the "discount allowed" is in the 4000s, the Sales section, whereas the code for "discount taken" is (I think) probably in the 5000s, the Purchases section. Given that an invoice issued by you to a customer is Sales, that will confirm which of those two nominal accounts to use, i.e. the one in the Sales section, the 4000s.
Finally, when producing the Profit and Loss Account, the firm's gross profit is calculated using the actual values of sales and purchases made. Both other income and expenses are listed after the calculation of gross profit on the P&L, and so these figures have to be recorded separately. Thus the discount cannot be put to the sales nominal code, as it would create an incorrect gross profit; you would be saying you sold goods of a lower value than you actually did, and offering a discount does not make the goods be worth less.
