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An amount of money subtracted from the sales price?
Called a "discount".
Gross sales price vs net sales price?
Gross sales is the total value of sales before any deductions. Net sales is what is left of the gross sales after deductions and expenses, including discounts, returns and allowances.
What is the Difference between trading discount and discount allowed?
Discounts may be offered on sales of goods to attract buyers. Discounts may be classified into two types:Trade Discounts: offered at the time of purchase for example when goods are purchased in bulk or to retain loyal customers.Cash Discount: offered to customers as an incentive for timely payment of their liabilities in respect of credit purchases.Trade DiscountTrade discounts are generally ignored for accounting purposes in that they are omitted from accounting records. Therefore, sales, along with any receivables in the case of a credit sale, are recorded net of any trade discounts offered.ExampleBike LTD as part of its sales promotion campaign has offered to sell their bikes at a 10% discount on their listed price of $100. Sale revenue and any accounts receivable will be recorded net of trade discount, i.e. $90 per bike.Cash DiscountCash discounts result in the reduction of sales revenue earned during the period. However, not all customers may qualify for the cash discount. It is therefore necessary to record the initial sale and receivables at the gross amount (after deducting any trade discounts!) and subsequently decreasing the sale revenue and accounts receivable by the amount of discount that is actually allowed. Following double entry is required to record the cash discount:DebitDiscount Allowed (income statement)CreditReceivableDebiting discount allowed ledger has the effect of reducing gross sales revenue by the amount of cash discount allowed. Consequently, receivables are credited to reduce their balance to the amount that is expected to be recovered from them, i.e. net of cash discount.ExampleBike LTD as part of its sales promotion campaign has offered to sell their bikes at a 10% discount on their listed price of $100. If customers pay within 10 days from the date of purchase, they get a further $5 cash discount. Bike LTD sells a bike to XYZ who pays within 10 days. Before we proceed with the accounting entries, it is necessary to first distinguish between the two types of discounts being offered by Bike LTD. The 10% discount is a trade discount and should therefore not appear in Bike LTD's accounting records. The $5 discount is a cash discount and must be dealt with accordingly.The initial sale of the bike will be recorded as follows:$$DebitXYZ (receivable)90CreditSales90As XYZ qualifies for the cash discount, the following double entry will be required to record the discount allowed:$$DebitDiscount Allowed (income statement)5CreditXYZ (receivable)5The above entries have resulted in sales of Bike LTD being reduced to $85 (100-90-5). The receivable from XYZ has also been reduced to this amount effectively. wriiten by nana tweneboah kodua (prisdark academy)
Do you add or subtract discounts?
A discount is subtracted. Suppose something's price was $5 and there was a $1 for that day. You could calculate the price by doing $5 -$1 = $4. The discount is the reduction in price.
Why would a company report gross sales and net sales separately?
To provide more information. "Netting out" items such as gross sales against returns and discounts hides information that may be desirable. For example, if no allowance for returns is being recorded, then the so called net sales figure is probably overstated, but this can not be determined if sales are presented at net.
