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A Trade Discount is a discount given at the point of purchase. It reduces the list price as to encourage bulk purchase.
In MoneyWorks, the Discount field is next to the Unit of Measure (UOM) field of a Sales Invoice. You enter a discount percentage in the Discount field whenever you give a discount to a customer.
Assuming an item list price is $100 and you give 10% discount. When the item is picked up in the Sales Invoice transaction, $100 will show at the Unit Price field. You enter 10 in the Discount field and MoneyWorks will calculate the total amount (the Extension field) automatically. The journal behind the sales invoice transaction is:
Debit the Accounts Receivable 90.00
Credit the Sales 90.00
If you have created the item as a product item (inventory), then the journal includes debiting the Cost of Goods Sold account and credit the Inventory Assets account.
MoneyWorks does calculate the margin of every unit sold. When discount has applied to the line item, it reduces the margin. The discount given affects the commission report and profitability (Sales report) analysis.
We will discuss how to set up the item profile for bulk purchase in our coming post. Stay with us.