Detailed instructions on accounting for trade discounts

Trade discount accounting is an important part of business accounting. This not only ensures transparency in financial reporting but also optimizes revenue and cost management processes. In this article, 1C Vietnam will provide detailed instructions on how to account for trade discounts , from recording discounts, allocating costs to handling arising situations. Let's find out now!

1.What is trade discount?

Trade discount, also known as Trade Discount in English, is a discount that businesses apply to customers when they purchase goods in large quantities or meet certain conditions. This is a strategy to promote customer purchases, to increase sales and improve profits.

If the enterprise applies the accounting regime according to Circular 200/2014/TT-BTC, the accountant will record the trade discount into account 5211 - Trade discount and transfer the entire discount amount to account 511. – Revenue from sales and service provision at the end of the period.

If the enterprise follows the accounting regime according to Circular 133, the accountant will record trade discounts directly to Debit Account 511, because this Circular does not apply Account 521 - Revenue deductions. At the end of the period, the accountant does not need to make a transfer entry because the trade discount has been recorded in the Debit side of Account 511 when incurred.

Trade discounts are divided into 3 different forms, specifically:

• Discount on each purchase.
• Discount after multiple purchases.
• Discount after promotional programs.

Each type of discount has its own regulations and requires different invoices and tax declarations. Accountants need to determine trade discounts for each specific case.

2 Instructions for accounting for trade discounts

Trade discount accounting is an important part of business accounting, helping to manage customer discounts accurately and transparently. Therefore, the accounting process needs to be carried out in accordance with the law and in accordance with the accounting regime currently applied by businesses. Below are detailed suggestions.

2.1 Trade discount accounting process according to Circular 200

Account 5211 provides trade discounts to customers who purchase goods in large quantities but have not been recorded on sales invoices during the period. According to Article 81 of Circular 200/2014/TT-BTC:

• Case 1: If the commercial discount has been recorded on the VAT invoice or sales invoice, the enterprise does not use account 5211. Sales revenue is recorded at the price minus the commercial discount (net revenue) .
• Case 2: If the trade discount has not been recorded on the invoice, the enterprise must separately track this item on Account 5211 and record the initial revenue according to the price before deducting the discount (gross revenue).

Cases where trade discounts arise:

• Immediate discount: The price listed on the invoice has been reduced and discounted.
• Discount after multiple purchases: Discount shown on the last purchase.
• Discount greater than the amount on the final invoice: Create a separate invoice for this discount.
• Discount after promotional period: Create an adjusted invoice with a list of invoices that need to be adjusted.

Final accounting:

• Seller: Transfer the trade discount to the sales and service provision revenue account:
  • Debit Account 511 - Revenue from providing services and selling goods.
  • Credit: Account 521 - Trade discounts.
• Buyer: Allocate trade discounts based on inventory status:
  • If inventory is still in stock: Record a decrease in inventory value.
  • If inventory has been sold: Record a decrease in cost of goods sold.
  • Debt to accounts 111, 112, 331...
  • There are accounts 152, 153, 156... (trade discount value of unconsumed inventory during the period)
  • Credit Account 632 - Cost of goods sold (commercially discounted value of inventory sold during the period)
  • Credit Account 133 - Deducted VAT (if any).

2.2 Trade discount accounting process according to Circular 133

The biggest difference between Circular 133 and Circular 200 when accounting for trade discounts is that Circular 133 does not use account 521. Instead, trade discounts are accounted for in the Debit side of account 511. The method of accounting for trade discounts according to Circular 133 is similar to the instructions in Circular 200, just change Debt 5211 to Debt 511.

Accountants base on the enterprise's accounting regime, according to Circular 200/2014/TT-BTC or Circular 133/2016/TT-BTC, to carry out trade discount accounting appropriate to each case. specifically.

From July 1, 2022, according to Decree 123 and Circular 78, organizations, businesses and individuals must stop using paper deduction documents and self-printed documents according to Circular 37, and switch to using Electronic personal income tax deduction voucher.

3. Principles for writing commercial discount invoices

When performing commercial discounts, accounting for discounted invoices according to principles is very important to ensure transparency and accuracy in business operations. When performing this operation, businesses need to pay attention to the following principles:

3.1 Discount invoice for each purchase

The following contents will be recorded on the VAT invoice: VAT, discounted selling price, and total payment value including VAT.

For example: On April 20, company A organized a 10% discount program when purchasing a smartphone product worth 15 million VND. On that day, Mr. B comes to buy a phone at company A and the invoice will be written as follows:

3.2 Quantity discount invoice

Case 1: When the discount amount is smaller than the amount on the final invoice received by the buyer, the discount amount will be deducted directly from that final invoice.

For example: On January 20, company x 15 = 26.25 million).

• On January 22, company Y bought 3 computers, not enough for the prescribed quantity, so the invoice still recorded the price of 1 computer as 25 million.
• On January 24, company Y continued to buy 7 computers, not enough for the prescribed quantity, so the invoice still recorded the price of 1 computer as 25 million.
• On January 26, company Y bought 5 units, the quantity was enough as contracted, so company Y received a 7% commercial discount from company X, issued an invoice as follows:

Case 2: In case the discount amount is greater than the amount on the final invoice or when the promotion period ends, an adjustment invoice will be created to reduce the value of previously issued invoices.

For example: On May 25, company % x 8 = 28.8 million).

• On May 27, company Y bought 2 computers, not enough for the prescribed quantity, so the invoice still recorded the price of 1 computer as 30 million.
• On May 29, company Y continued to buy 4 computers, not enough for the prescribed quantity, so the invoice still recorded the price of 1 computer as 30 million.
• On May 31, company Y bought 2 computers, the quantity was enough as contracted, so company Y received a 12% trade discount from company X, because the trade discount amount was 28.8 million. more than the amount on the final invoice, company X issues a reduced invoice as follows:

4. How to distinguish trade discounts from payment discounts

It is extremely important to understand the difference between the concepts "trade discount" and "payment discount". Although they appear similar, in fact, these two concepts have distinct characteristics.

4.1. Distinguish between the concepts of trade discount and payment discount

The two concepts "payment discount" and "trade discount" often cause confusion, however, they are completely different in nature. Specifically:

Legal basis: VAS 14; Point 2.5 Appendix 4 attached to Circular No. 39/2014/TT-BTC; Clause 4, Article 2 of Law No. 71/2014/QH13; Point 4, Appendix 01 – Circular No. 92/2015/TT-BTC

4.2. Distinguish between the concepts of trade discounts and sales discounts

Accountants need to clearly distinguish between the two concepts of trade discounts and sales discounts:

• Trade discounts are reduced business costs on the listed price for customers when purchasing in large quantities.
• Discount on sales price is a deduction given to the buyer because the product does not meet requirements such as poor quality, incorrect specifications,...

Understanding how to account for trade discounts not only helps businesses organize their finances effectively but also ensures compliance with relevant legal regulations. Hopefully through the above article, your business has gained more useful information. If you have any questions, please contact 1C Vietnam for support.