*If a bad debt has been written off by a VAT registered business, the VAT on the original sale can be reclaimed. The debt must be older than six months and less than three years and six months. You include the VAT on the bad debt in input VAT (box 4) of your VAT return. [read more]
Writing off Bad Debts*Once a business decides that a debt is bad, a write-off is required. The effect of such a write off is that the value of the debtor (as a current asset) falls by the amount that is being written off and the profit also falls by the same amount. * |
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Advantages & Disadvantages of Settlement Discounts*Advantages Encourages customers to pay early, thus helping cashflow. Can be used as a marketing device. Disadvantages Some customers take the discount without actually paying within the timescale required. * |
VAT on settlement discounts*For the purposes of VAT, settlement discounts are treated as a finance charge. Therefore, VAT is calculated on the net amount (after the settlement discount – regardless of whether the discount is actually taken). * |
Accounting for a Settlement Discount*When offering a settlement discount, the accounting entries are: Credit Sales (with the full amount) Debit Discounts allowed (P&L account) (with the discount amount) * |
Settlement Discounts*It is quite common to offer a settlement discount to customers who pay within a certain timescale. The main reason for offering such a discount is to aid cash flow. However, do not miss the sales/marketing advantage that this also offers: Make sure that all your customers are aware that you are offering a settlement [read more] |
Goods Written Off or Goods Written Down*Sometimes, goods might be unsaleable for one of the following reasons: the goods might be lost or stolen the goods might be damaged, and therefore worthless the goods might become obsolete When goods are lost, stolen or disposed of, the business will make a loss on them, because they will have zero sales value. Similarly, [read more] |
