Treatment
of employee discounts under the Retail Inventory Method
- When sales are
made to employees at a discount, the sale to the employee has probably
been recorded in the Sales account at the discounted price. If
so, (and this is the usual assumption in retail inventory problems)
then the employee discounts need to be subtracted in the retail column
(or, added back to sales and this increased sales number subtracted in
the retail column.)
- The estimated
goods available for sale at retail would assume that the sales would
have been made at full retail prices; this would not be the case for
sales made to employees at a discount. This is why the employee
discounts should be subtracted in the retail column. (“full"retail
price of the goods sold to the emplyees)
- Employee
discounts differ from other Sales discounts; with sales discounts, the
sale is initially recorded at the full sales price, and if the sales
discount is taken, then the sales discount becomes a contra-revenue
account, deducted from sales.
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