Accounting for Advances, Bonuses, Discounts, and Depreciation

Posted on Mar 16, 2025 in Economy

Advances

  • Advances to Suppliers: Giving money for future acquisitions, creating a credit (from the client’s perspective).
  • Advances to Customers: Giving money on account for future purchases, creating a debit (from the seller’s perspective).

VAT (Value Added Tax)

The VAT buy/sell books reflect whether your balance is a debtor or creditor. When the tax debit is greater than the tax credit, you are in debt. The balance reverses in the opposite scenario.

Bonuses

  • Awarding a Bonus: Involves an increase in the quantity of goods.
  • Receiving a Bonus: Implies the supplier sends more merchandise than agreed upon.

When the terms aren’t specified, the standard practice applies when buying goods.

* Bonuses have a commercial connotation.

Discounts

Discounts are a financial concept involving a rebate or offset of a portion of the debt. It lowers the amount of credit. When we give a discount, it’s a commercial transaction where the seller accepts a lower value for the assets.

Depreciation Methods

Straight-Line or Constant Method

This method assigns a share of depreciation to the results, linked to the asset’s tenure. Options include:

  • Base Year: All accounting periods bear the same negative result, assuming the property is built on the first day of the exercise. Equation: (Acquisition Value – Salvage Value) / Life = Depreciation Expense
  • Base Monthly: The fee is charged based on the asset’s depreciation period from the month of acquisition. Equation: (Annual Depreciation / 12) x Number of Months
  • Method Based on Production or Technical Capacity: The depreciation charge is based on hours of work, units produced, or kilometers traveled.

Fixed Assets

These are tangible and intangible assets used for the entity’s main activity, including those under construction, in transit, or being installed.

Assets are incorporated into the heritage with the intention of being used to fulfill the entity’s objective, are not likely to be sold, their use capacity is not quickly exhausted, and their useful life exceeds the fiscal year.

Valuation: The general valuation criterion at the time of incorporation is the cost, representing the economic sacrifice incurred until the goods are ready for use. The term ‘cost’ is interpreted as the installed and ready-to-go cost.

Amortization

The decrease in the value of these assets represents negative results for the entity. These are period charges incurred due to the permanence or use of the property.

Causes of Amortization:

  1. Techniques: Linked to time, technological advances, or the loss of capacity for normal use.
  2. Economic: Related to market behavior for certain goods.
  3. Fashion or Seasonal Changes: Changes in consumer tastes make machines obsolete, affecting the production of such goods.

Classification of Depreciation:

  1. According to the Degree of Predictability:
    • Common: Root causes decrease the predictability of the facts.
    • Extraordinary: Occur unpredictably and are not expected to recur.

Asset Lifetime, Recovery, and Acquisition Value

  • Lifetime of Assets: The estimated period the asset can be used, based on time, units produced, or kilometers traveled.
  • Value Recovery: The estimated value of the asset after its useful life.
  • Acquisition Value: The cost of incorporating the asset.
  • Value to Depreciate the Assets: The difference between the acquisition cost and its salvage value.