discount on sales

This query is : Resolved

deepak K Gujrati (Querist)
Follow

05 January 2010 The assessee is retail trader of readymade garments.It has allowed discount on cash memo.Cash Memo is prepared on computer {on MRP} and discount is allowed manually. Normally discount is allowed in lumpsum which ranges from 2% to 5%.On cash memo name of the party is not mentioned. The assessing officer is not agreeing the discount allowed and disallowed 25% of total discount allowed. Sales in the books of account is shown after deduction of discount.Please suggest some remedy.

Sudhindra

Sudhindra (Expert)
Follow

06 January 2010 There are two types of discounts one is cash discount and another is trade discount, cash discount is allowed on the cash purchases over the counter and is deducted from the cash memo at the time of purchase...

However the trade discount is allowed on the basis of the relationship and the bulk purchases that is the quantity discount which it is called normally.

Normally cash discount is not shown anywhere in the books, but trade discount is shown as a deduction from the sale in the invoice for the net amount.

Since cash purchases are subject to cash discount the net value is only shown in the bill or the cash memo, hence the same is not reflected even in the books of account, however in the notes to accounts to the balance sheet auditors normally do mention the note as cash purchases is net of discount cash so that cash discount is not accounted for as part of trade transaction.

I think one of the reasons for the disallowance being that the name of the party is not mentioned in the ill or the cash memo, and the assesing officer is not aware of the cash discount accounting concept , hence it needs to shown that notes to accounts do contain a note to this effect.

Before explaining the IT officer pls ensure that the notes to accounts do contain the following note as to the cash discount.

Hope ur ITO will be convinced of the same.

M Prabhakar Menon

M Prabhakar Menon (Expert)
Follow

06 January 2010 Over the counter sales/cash sales do not as a rule have customer names as its not required by any entity except in exceptional cases where a future reference to a customer may be necesary like in case of sale of vehicles or payments received by cheques. Its better to have your software suitably modified to record cash discounts otherwise your problem will not be solved. Alternatively u can have a 'daily counter sales losses account' and debit such amounts to this account.

Upgrade to CAclubindia Pro. Subscribe Now!