I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

PART E: PREPARING A TRIAL BALANCE 

 

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Customer takes the discount 

Table Tops pays  $7,220 7 days later:  

DEBIT 

 Bank 

    $7,220 

CREDIT Trade 

receivables: 

 

    $7,220 

Revenue is then reduced to account for the discount taken of $380: 

DEBIT 

 Sales 

    $380 

CREDIT Trade 

receivables 

    $380 

2.2.3.3 IFRS 15 

We will look at IFRS 15 in broader terms in Chapter 20, but the reason for the accounting treatment of 

cash/settlement discounts explained above is to comply with IFRS 15 as follows: 

A cash or settlement discount is a variable element of the consideration (payment) that the business will 

receive for the sale. 

IFRS 15 requires a business to estimate the amount of the ‘variable consideration’ it expects to receive, and 

include this in the ‘transaction price’ (the amount expected to be received for the sale). (paras. 50–59) 

Therefore if a business expects the discount to be taken, then the variable consideration, ie the discount 

amount should not be included in the transaction price. Therefore revenue for the sale is recognised net 

of the discount.  

Conversely, if the business does not expect the discount to be taken, the discount amount should be 

included in the transaction price, and therefore the full undiscounted amount is recognised as revenue. 

You don’t have to worry about determining whether or not a business expects a customer to take up the 

discount, as this will be stated in an exam question.