Discount Accruals

[Jennajay]

Hello all! I am preparing for a discount accruals audit of various countries in Western Europe. To give a bit of background, I work for a Consumer Products company. The type of accruals that I am referring to are discounts given for high turnover, prompt payment, seasonal discounts, trade discounts (warehousing, shipping, shelf stocking), discounts related to quantities purchased, employee discounts, coupons, rebates, etc.

Questions:

1) Which type of discounts would you expect to be included in a discount accrual?
2) What are the journal entries for originally recording the accrual and then eventually reversing the accrual (if discount was given AND if discount was not given in the end)?
3) How do these accruals and their adjustments impact the Balance Sheet and P&L?

Thanks in advance for all of your help!!!!!!

 

[mike99]

1) Would need more information on the companies that you are auditing, and the general reason why you need to audit it (if you're another consumer products company - are these subsidiaries of yours? Franchisees?)

2) These really depend on the company, I would say, and their method of recording. I have seen the following before:
Typically keep the cost and discount amounts/accounts separate, for track-keeping, further recording, budgeting, management review, etc. purposes.

E.g., if receive a discount of 5% on inventory if pay within 30 days:

Buy inventory R100:
Dr Inventory R100
Dr Account Payables discount R5
Cr Account Payables R100
Cr Inventory discount R5

Utilise the discount:
Dr Account Payables R100
Cr Bank R95
Cr Account payables discount R5

Dr Inventory discount R5
Cr Inventory R5

If do not utilise the discount:
Dr Inventory discount R5
Cr Accounts payable discount R5

3) Well ... it depends on the actual discount, management's expectations as per settlement (whether to accrue for it or not, I guess), and whether they disclose it net of discounts (most common) or in another way.Very vague question.