Page 8 Chapter 2

CHAPTER 2
Selling Goods and Services

good deal and he or she is likely to come again and again. Trade discounts are usually
offered at a percentage of the total cost.

Calculating discounts

So how does this affect the invoice we raise? Well, let us take an example of an invoice
where a 10% trade discount has been given.

Calculating a trade discount

Dawson Supplies is supplying R Patel with 50 rolls of cotton dress material at
£75.00 per roll. R Patel is a dress maker and so Dawson Supplies offers R Patel a
10% trade discount.

Dawson Supplies will calculate the invoice as follows:

1 Calculate the total price before discount
50 x £75.00 = £3,750.00

2 Calculate the trade discount
£3,750.00 x 10%. (You can either use the percentage key on your
calculator or multiply by 10 and divide by 100) = £375.00

3 Calculate the net price before VAT
£3,750.00 ‐ £375.00 = £3,375.00

4 Calculate the VAT (at 20%). Again you can either use the percentage key
or multiply by 20 and divide by 100)
£3,375.00 x 20% (or 20/100) = £675.00

5 Calculate the total invoice price
£3,375.00 + £675.00 = £4050.00

You should note how the trade discount is taken off before calculating VAT, since the tax is
only on the money transferred. (We shall look at VAT in more detail in the next chapter.)

Now let us take a look at how the invoice would look with the trade discount taken off.

‐ 18 -