Discount Types and Their Calculations – User Guide

This guide explains how to create discounts, how each discount type impacts order totals and tax, how multiple discounts stack, and how to correctly apply a zero‑tax offer.

Creating Discounts

Follow these steps to create new discount:

Step 1: Go to Sales module and select “Discounts”.

Step 2: Select “New” in the top left corner to create new discounts.

Fill in the fields described below, then select SAVE.

General Details

Name: Enter a clear, descriptive name (e.g., “Flat $100 Off”, “20% Off Holiday Sale”).
Code: Enter a short, searchable ‘2-digit’ code to quickly locate the discount.
Financial Account: Select the ledger/account to track the discount expense or liability.
Is Active: Enable to make the discount available; disable to deactivate it.

In OFFER TYPE select either “Offer on Total” (applies to the entire invoice) or Offer on Line Item (applies to specific items).

Offer on Total — applies to the entire invoice total.
Offer on Line Item — applies to individual items.

Start Date: First valid date. Leave blank to activate immediately.
End Date: Last valid date. Leave blank for Ongoing / perennial discounts.
Percent: Enter a percentage for percent‑based discounts (e.g., 15 for 15%).
Flat Amount: Enter a fixed amount for flat‑amount discounts (e.g., 100 for $100).
Apply Fixed Amount: Check to use Flat Amount; uncheck to use Percent.
Minimum Invoice Amount: Lowest qualifying order total (e.g., $500).
Maximum Invoice Amount: Highest qualifying order total (e.g., $2,000).
Save on Tax: If checked, the customer pays no tax; the system back‑calculates totals so tax is recorded in accounting while the customer pays the sticker price.

Example Setup (Baseline)

To keep all the examples consistent, we will use the following baseline values:

Sub Total (sum of item prices): $1,000
Tax Rate(10.25% of $1,000): $102.50
Baseline (no discount): Final Amount = $1,000 + $102.50 = $1,102.50

Discount Types & Calculations

1. Fixed Amount Discount

Applies a specific fixed amount to the Sub Total.

Example: Flat $100 Off

Sub Total: $1,000
Discount: $100
Total (after discount): $900
Tax (10.25% of $900): $92.25
Final Amount: $900 + $92.25 = $992.25

2. Percentage Discount

Applies a percentage to the Sub Total.

Example: 20% Discount

Sub Total: $1,000
Discount: 20% × $1,000 = $200
Total (after discount): $800
Tax (10.25% of $800): $82.00
Final Amount: $800 + $82.00 = $882.00

3. Zero‑Tax Offer (Save on Tax)

Customer pays only the sticker price (no tax). Accounting still records tax by back‑calculating the taxable base.

Sub Total: $1,000
Final Amount (customer pays): $1,000
Back‑calculated Total: $907.03
Tax (10.25% of $907.03): $92.97
Check: $907.03 + $92.97 = $1,000 (matches final amount)

Effective discount equals the tax amount waived: $92.97.

4. Applying Multiple Discounts

When multiple discounts are combined, the order of application matters. Typically, percentage discounts are applied after any flat discount to maximize savings, though your business can define a standard sequence. Zero tax should always be applied last.