Goods are listed at 200 with a 15\% trade discount. Find the net price. [2 marks]

Add VAT at 20\% to a net price of 250. [2 marks]

A total of 240 includes 20\% VAT. Find the VAT amount. [2 marks]

ScotlandAccountingSyllabus dot point

How do you prepare and use business documents such as invoices, credit notes and statements of account, including trade discount and VAT calculations?

Preparing and interpreting business documents - invoices, credit notes and statements of account - including trade discount and Value Added Tax (VAT) calculations.

A focused answer to the SQA National 5 Accounting content on business documents, covering the invoice, credit note and statement of account, how trade discount is applied, and how to calculate Value Added Tax (VAT) on the net price to find the total a customer pays.

Generated by Claude Opus 4.810 min answerUpdated 2026-06-15

Reviewed by: AI editorial process; not yet individually human-reviewed

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What this dot point is asking
The three business documents
Trade discount
Calculating VAT
Working backwards from a VAT-inclusive price
Examples in context
Try this

What this dot point is asking

The SQA wants you to know the main business documents used when goods are bought and sold on credit - the invoice, the credit note and the statement of account - and to carry out the money calculations on them: applying trade discount and then adding Value Added Tax (VAT) to find the total a customer pays.

The three business documents

When one business buys goods from another on credit, a chain of documents records the deal.

Invoice. The bill the seller sends the buyer. It lists the goods, quantities, unit prices, any trade discount, the VAT, and the total amount due. It is the source document for recording a credit sale or purchase.
Credit note. Sent by the seller to the buyer to reduce the amount owed - when goods are returned, arrive damaged, or were overcharged on the invoice. It is sometimes printed in red.
Statement of account. Sent by the seller to the buyer, usually monthly. It summarises all the invoices and credit notes issued and payments received during the period, and shows the balance the buyer still owes.

Trade discount

Trade discount is a reduction off the list price given to business customers, often for buying in bulk or for being in the trade. It is deducted before VAT is calculated, and it never appears in the ledger - only the net (after-discount) figure is recorded.

Calculating VAT

Value Added Tax (VAT) is a tax added to the selling price of most goods and services. The seller charges it on top of the net price and later pays it to HM Revenue and Customs. At National 5 you calculate VAT on the net price (after any trade discount) at the rate given in the question, commonly $20\%$ .

Price an invoice with trade discount and VAT

Goods have a list price of $\pounds 500$ . A $20\%$ trade discount is allowed, and VAT is charged at $20\%$ .

Step 1: Apply the trade discount to find the net price

Trade discount always comes first because VAT is charged on the discounted price, not the original list price. Deduct the discount from the list price:

\text{Discount} = 500 \times 0.20 = \pounds 100

\text{Net price} = 500 - 100 = \pounds 400

Step 2: Calculate VAT on the net price

VAT is levied on the net (after-discount) price, not the list price. Charging VAT on the list price is the most common exam error:

\text{VAT} = 400 \times 0.20 = \pounds 80

Step 3: Find the total payable

Add the net price and the VAT to reach the amount the customer must pay:

\text{Total} = 400 + 80 = \pounds 480

Laid out as an invoice:

Item	Amount
List price	$\pounds 500$
Less trade discount (20%)	$(\pounds 100)$
Net price	$\pounds 400$
Add VAT (20%)	$\pounds 80$
Total payable	$\pounds 480$

Final answer: Total payable $= \pounds 480$ .

Working backwards from a VAT-inclusive price

Sometimes you are given the total including VAT and asked for the net price or the VAT. Divide by the multiplier, do not just take the percentage off.

Find the net price from a VAT-inclusive total

A total of $\pounds 360$ already includes VAT at $20\%$ . Find the net price and the VAT amount.

Step 1: Identify what the gross total represents

Because VAT at $20\%$ was added to the net price, the gross total is $120\%$ of the net price. Expressed as a multiplier, net price $\times 1.2 =$ gross total. This means the multiplier to reverse is $1.2$ .

Step 2: Divide by the multiplier to recover the net price

Dividing by $1.2$ undoes the multiplication that added VAT. A common mistake is to subtract $20\%$ from $\pounds 360$ , which gives the wrong answer because $20\%$ of $\pounds 360$ is not the same as the VAT that was added to the smaller net price:

\text{Net price} = 360 \div 1.2 = \pounds 300

Step 3: Find the VAT amount by subtraction

Now that both the gross total and the net price are known, the VAT is simply the difference:

\text{VAT} = 360 - 300 = \pounds 60

Final answer: Net price $= \pounds 300$ ; VAT $= \pounds 60$ .

Examples in context

A joiner buys timber listed at $\pounds 1000$ from a merchant who gives a $10\%$ trade discount. The net price is $\pounds 900$ , VAT at $20\%$ is $\pounds 180$ , and the invoice total is $\pounds 1080$ . If a faulty length worth $\pounds 90$ net is returned, the merchant issues a credit note for $\pounds 90 + \pounds 18$ VAT $= \pounds 108$ . At month-end the merchant's statement of account shows the invoice, the credit note and any payment, leaving the joiner's outstanding balance - exactly the document trail this dot point tests.

Try this

Q1. Goods are listed at $\pounds 200$ with a $15\%$ trade discount. Find the net price. [2 marks]

Cue. $200 \times 0.85 = \pounds 170$ .

Q2. Add VAT at $20\%$ to a net price of $\pounds 250$ . [2 marks]

Cue. $250 \times 1.2 = \pounds 300$ .

Q3. A total of $\pounds 240$ includes $20\%$ VAT. Find the VAT amount. [2 marks]

Cue. Net $= 240 \div 1.2 = \pounds 200$ , so VAT $= \pounds 40$ .

Exam-style practice questions

Practice questions written in the style of SQA exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.

SQA N5 style4 marksA wholesaler sells goods with a list price of 800 pounds, allowing a 25 percent trade discount. VAT is charged at 20 percent. Calculate the total amount the customer must pay.

Show worked answer →

Trade discount: $800 \times 25\% = \pounds 200$ , so the net (goods) price is $800 - 200 = \pounds 600$ (1 mark for discount, 1 mark for net price). VAT is charged on the net price: $600 \times 20\% = \pounds 120$ (1 mark). Total payable $= 600 + 120 = \pounds 720$ (1 mark). Markers reward applying the discount before VAT, charging VAT on the discounted figure, and the correct total. A common error is charging VAT on the list price of 800.

SQA N5 style3 marksExplain the purpose of a credit note and a statement of account.

Show worked answer →

A credit note is sent by the seller to reduce the amount a customer owes - for example when goods are returned, are faulty, or were overcharged on the invoice (1 mark for purpose, 1 mark for an example of when it is used). A statement of account is sent by the seller, usually monthly, to summarise all invoices, credit notes and payments and to show the balance the customer still owes (1 mark). Markers reward identifying the credit note as reducing a debt and the statement as a summary of the account showing the outstanding balance.

Related dot points

Sources & how we know this

National 5 Accounting Course Specification — SQA (2023)
National 5 Accounting formulae sheet — SQA (2022)