Module 2 · Core · 9 min read

Discounts in the sales cycle

You will be able to: Apply a line discount and a document discount and calculate the VAT correctly; Explain the difference between a discount before tax and after tax; Record a settlement discount on a receipt and know how it posts.

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Discounts look simple but they change VAT, so it matters where and when they are given. Zeyto supports three kinds: a discount on a line, a discount on the whole document, and a settlement discount when the customer pays. In every case the books must stay consistent with what the customer actually pays.

Line discount

On a sales document, press Columns above the lines and tick Disc % or Disc Amt. They are hidden until ticked. Type the discount on the line and Zeyto reduces the line value before VAT.

Line discount of 10%10 bags at AED 50 = 500. Disc % 10 takes off 50, leaving a net of AED 450. VAT: 5% of 450 = AED 22.50. Line total: AED 472.50. Sales is credited 450, not 500, and VAT Output is credited 22.50.

Document discount before tax

The Discount (before tax) box in the Totals (press F7 to jump there) is a discount on the whole document. Zeyto shares it over the lines in proportion to their value, saves it with the document, and takes it off before VAT, so the total on screen is the total that is saved, posted and printed. A role that locks discounts, or a user whose maximum discount is lower, cannot use it.

A new sales invoice with items and the totals box showing the Discount before tax and Discount after tax fields next to Subtotal, Taxable and VAT.

The Totals box: Discount (before tax) and Discount (after tax) sit beside the VAT lines.

The Totals box: Discount (before tax) and Discount (after tax) sit beside the VAT lines.
AED 50 off a AED 500 invoice, before taxNet of lines: 500. Discount before tax: 50. Taxable: 450. VAT 5%: 22.50. Total: 472.50. The same result as the 10% line discount, because 50 is 10% of 500.

Document discount after tax

Discount (after tax) is taken off the total that includes VAT, then Zeyto works everything out again, so both the taxable value and the VAT go down. It always prints, as Total before discount, Discount (after tax) and Amount payable.

AED 52.50 off a AED 525 invoice, after taxTotal before discount: 525.00. Discount after tax: 52.50. Amount payable: 472.50 including VAT. Taxable value: 472.50 / 1.05 = 450.00. VAT: 472.50 - 450.00 = 22.50. Another example from Zeyto's help: a bill of 1,050.00 (1,000.00 plus 50.00 VAT) with 50.00 after tax becomes 1,000.00 including VAT, with taxable 952.38 and VAT 47.62.

Settlement discount on a receipt

A customer who pays quickly may be given a discount at the receipt. On the Receipt Voucher, the field Discount allowed to customer takes the amount, and Discount is chooses how it is treated:

The Receipt Voucher form with the customer picked and the settlement discount field Discount allowed to customer.

On a receipt, Discount allowed to customer records a settlement discount.

On a receipt, Discount allowed to customer records a settlement discount.
  • Settlement discount, VAT unchanged (the default): simply an expense. Your VAT return does not move.
  • Before tax: the amount is on the net and VAT is added on top. A discount of 50 at 5% reduces the bill by 52.50.
  • After tax: the amount includes VAT. The VAT part is taken back from your output tax.
Settlement discount, VAT unchangedInvoice AED 525. The customer pays AED 500 and you allow AED 25 for prompt payment. Debit Bank 500; Debit Discount Allowed 25; Credit Trade Receivables 525. Debits 525 = credits 525. The invoice is cleared. The AED 25 is an expense; the VAT of AED 25 on the original invoice stays as invoiced.
Settlement discount before taxInvoice AED 525. You give a discount before tax of AED 50. VAT on it is 5% of 50 = 2.50, so the invoice is cleared by 52.50. The customer pays 472.50. Debit Bank 472.50; Debit Discount Allowed 50; Debit VAT Output 2.50; Credit Trade Receivables 525. Debits 525 = credits 525. Output VAT falls by 2.50 and the VAT return shows a matching negative entry.

Controls and printing

  • Sell below cost: Settings, Document Entry can warn on a line priced below cost.
  • Printing: Settings, Company Profile, Discounts on Printed Documents decides whether printed documents show discounts or only net prices. A customer record can override it. A discount given after tax is always printed.
  • A discount before or after tax cannot be saved in a VAT period you have already filed, and cannot be used with a post-dated cheque.

Try it in the demo

  1. Open https://demo.zeyto.app/demo-app/ and sign in (user admin, password demoAdmin123). This is a public demo with sample data, so nothing you do there affects a real business.
  2. Open Sales, then Sales Invoice, press + New Sales Invoice and add a line. Press Columns and tick Disc %.
  3. Type 10 in Disc % and watch the Totals box change. Press F7 to reach the Discount (before tax) field and compare it with Discount (after tax).
  4. Open Sales, then Receipts, press + New and look at the Discount allowed to customer and Discount is fields. Do not submit.
Open the live demo

Public demo company, sign in as admin / demoAdmin123. Data refreshes nightly.

Key takeaways
  • A discount before tax lowers the taxable value and the VAT; a settlement discount (the default) leaves VAT unchanged.
  • AED 500 less 10% = 450, VAT 22.50, total 472.50.
  • Discount after tax works on the VAT-inclusive total and reworks both taxable value and VAT.

Check yourself

4 questions on this lesson. Not timed, not the exam, and you can try again. Score 60% or more, and read the lesson, to complete it.

1. Disc % and Disc Amt are hidden on a sales document until you tick them under Columns.

2. 10 bags at AED 50 get a 10% line discount and 5% VAT. What is the line total including VAT?

3. A bill of AED 1,050 (1,000 plus 50 VAT) gets a discount of AED 50 after tax. What is the VAT on the new total of AED 1,000 including VAT?

4. An invoice of AED 525 is paid with AED 500 cash into the bank and a AED 25 settlement discount (VAT unchanged). Which entry is correct?

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Practice questions for this module · Printable study sheet