sales discount

Examples of sales discount in the following topics:

• Recording Sales

  • Net sales are gross sales minus sales returns, sales allowances, and sales discounts.
  • 2/10, n/30 (2% discount if paid within 10 days, net invoice total due in 30 days).
  • Sales - Sales Return & Allowances - Sales Discount = Net sales
  • A discount from list price might be noted if it applies to the sale.
  • Net sales are gross sales minus sales returns, sales allowances, and sales discounts.

• Sales Forecast Input

  • For financial ratios that use income statement sales values, "sales" refers to net sales, not gross sales.
  • A discount from list price might be noted if it applies to the sale (discount expense debit).
  • Gross sales are the sum of all sales during a time period.
  • Net sales are gross sales minus sales returns, sales allowances, and sales discounts.
  • sales discounts allowed are reduced payments from the customer based on invoice payment terms such as 2/10, n/30 (2% discount if paid within 10 days, net invoice total due in 30 days)

• Bonds Issued at a Discount

  • When a business sells a bond at a discount, it must record a discount balance in its records and amortize that amount over the bond's term.
  • Next, the company debits the cash account by the amount of money it receives from the bond sale.
  • The business then debits the difference between the bond's face value and what it receives in cash from the sale.
  • That is the discount amount.
  • A bond's discount amount must be amortized over the term of the bond.

• Trade Allowances

  • Trade discounts are often combined to include a series of functions, for example 20/12/5 could indicate a 20% discount for warehousing the product, an additional 12% discount for shipping the product, and an additional 5% discount for keeping the shelves stocked with the product.
  • Trade discounts are given to try to increase the volume of sales being made by the supplier.
  • The larger the purchase, the larger the discount.
  • Other trade sales promotion methods include trade contests, which are contests that reward retailers that sell the most products, and point-of-purchase displays, which are used to create the urge of "impulse" buying.
  • Hairdressers can go to the manufacturer to get a discount for buying in bulk.

• Discounting

  • For example, a 2% discount on bills paid within 10 days is a cash discount.
  • Trade discounts, also called functional discounts, are payments to distribution channel members for performing some function.
  • Trade discounts are often combined to include a series of functions, for example 20/12/5 could indicate a 20% discount for warehousing the product, an additional 12% discount for shipping the product, and an additional 5% discount for keeping the shelves stocked.
  • Trade discounts are given to try to increase the volume of sales being made by the supplier.
  • The rationale for a senior discount offered by companies is that the customer is assumed to be retired and living on a limited income, and unlikely to be willing to pay full price; sales at reduced price are better than no sales.

• Setting a Credit Policy

  • A restrictive policy will most likely result in lower sales, but the firm will have a smaller investment in receivables and incur less bad-debt losses.
  • If a discount is offered, the amount of the discount must also be determined.
  • There are many purposes for discounting, such as to move out-of-date stock, to reward valuable customers, as a sales promotion, or to reward behaviors that benefit the discount issuer.
  • Some common types of discounts include:
  • Seasonal discount (for orders placed in a slack period for example).

• Sales Promotion

  • A consumer sales promotion targets the customer while a trade sales promotion focuses on organizational customers that can stimulate immediate sales.
  • They are used to lower prices, for discounts, free goods and value added giveaways.
  • Point-of-sale displays are in-store sales promotion techniques.
  • Wholesalers, retailers and other organizational groups are offered a wide array of sales promotion devices such as trade allowances or short term incentives to encourage retailer to stock up on a product, dealer loaders incentivizing product purchase and display, trade contests for selling the most product, point-of-purchase displays to create impulse buying and spiffs or bonus commissions on certain products and trade or functional discounts paid to distribution channel members for conducting sales and special events.
  • For example "buy one, get one free, three for two, buy quantity and receive a lower price or percentage discounts on specific days of the week.

• Objectives of a Sales Promotion

  • Sales promotion may be referred to as "below the line" or "point of sale. " For example, price reductions at the cash register or complimentary gifts with purchases all fall under sales promotional tactics.
  • Sales promotions can be directed to consumers, sales employees, or other retailers.
  • Sales and coupons are some of the most common sales promotion tactics to stimulate interest and encourage consumers to purchase products.
  • Trade discounts (also called functional discounts) - Payments to distribution channel members for performing certain functions.
  • The distribution of coupons is a common sales promotion tactic to encourage customer sales.

• Cash Flow

  • One way to get cash flow quickly is through seasonal discounts .
  • An example would be a discount on snowmobiles during the summer.
  • The intention of such discounts is to spread demand over the year.
  • Another option is cash discounts.
  • A quick way to generate cash flow is to offer seasonal discounts.

• Terms of Trade

  • The debtor is free to pay before the due date, and some businesses offer a discount for early payment.
  • A discount can be offered and stated as "2/10, net 30".
  • The operator may sign a franchising agreement, under which the distributor agrees to provide ice cream stock under the terms "Net 60" with a ten percent discount on payment within 30 days, and a 20% discount on payment within 10 days.
  • If sales are good within the first week, the operator may be able to send a check for all or part of the invoice, and make an extra 20% on the ice cream sold.
  • However, if sales are slow, leading to a month of low cash flow, then the operator may decide to pay within 30 days, obtaining a 10% discount, or use the money another 30 days and pay the full invoice amount within 60 days.The ice cream distributor can do the same thing, receiving trade credit from milk and sugar suppliers on terms of Net 30, 2% discount if paid within ten days.