The proper accounting for volume discounts requires adjusting the sales revenue for the discount given. For a company with $1 million in sales and $950,000 in expenses, the accounting profit would be $50,000.
The question pertains to the proper accounting for volume discounts on sales of products. In accounting, when a company offers volume discounts, it must reflect this in its financial statements accordingly. The discount affects the net sales revenue reported on the income statement.
For instance, if a firm recorded sales revenue of $1 million last year and its expenses included $600,000 on labor, $150,000 on capital, and $200,000 on materials, then the accounting profit can be calculated by subtracting these explicit costs from the revenues:
- Sales Revenue: $1,000,000
- Total Explicit Costs: ($600,000 + $150,000 + $200,000) = $950,000
- Accounting Profit: $1,000,000 - $950,000 = $50,000