Chapter 4

• Returns involve reversing a transaction. It can be between the business and a customer or the business and a supplier.
• A sale return involves returns from a customer.

  Originally there would have been a Debit to Cash or Trade Payables and a Credit to Revenue

  To reverse you would Debit Revenue and Credit Cash or trade Payables
• A purchase return involves returns to a supplier.

  Originally there would be a Debit to Purchases and a Credit to Cash or Trade Payables.

  To reverse you would Credit Purchases and Debit Cash or Trade Payables.
• There are two types of discounts:

  • Trade (bulk buying) - buy 1000 get 10% off
  • Early settlement discount - pay within 10 days get 10% off
• Trade Discount:

  Given as a reduction at the point of sale so you just account for the sale/purchase at the reduced price
• Early Settlement Discount:

  Account for sale/purchase based on the expected settlement. If settlement is not as expected, a correction is made at the point of the settlement.

  For sales, difference between expected and received is made up as an adjustment to revenue.

  For purchases, difference between expected and paid is made up as an adjustment to purchases.
• Payroll is a large part of a businesses costs. The business must pay salaries and wages to its employees and associated amounts of tax to the government.
• Employers total costs = Gross salary + Employers NI
• Net pay = Gross salary - PAYE - Employers NI
• HMRC Liabilities = PAYE +Employers NI + Employees NI
• The double entry for payroll is:

  Debit Wages and Salary (gross salary + Employers NI)

  Credit Cash (net salary paid to employee)

  Credit Income Tax (PAYE + Employers NI + Employees NI)