Hi, I seem to have found an error in the way our term discounts are working. I don't think this is an issue with myset up, but I am looking for feedback.

The problem is as follows. We create an invoice, say for $100 plus tax @10%, so $110 total. The customer then gets a 5% discount if they pay upfront. So they pay us $110 x 95% = $104.50.

The journals currently are as follows:

On sale:

Dr Accounts Receivable      $110.00
  Cr Sales                                                $100.00
  Cr Tax Collected                                    $10.00

Then, on payment of the discounted amount:

Dr Bank                              $104.50
Dr Discount expense          $5.50
   Cr Accounts Receivable                     $110.00

So under the above scenario, our profit is $100 in sales less $5.50 in discounts, so $94.50. However, the above journals don't take into account the tax that we don't have to remit, as we have given the discount, i.e. 10% of the $5.50. I think the second journal should be: