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Good Morning,
I have a question on how purchase threshold discounts should be recorded by the purchasor not seller. I find plenty of information from the seller's perspective related to revenue recognition, but I'm not as comfortable with the accounting from the purchasor's perspective. I am performing an audit of the purchasing function. They have an agreement with a key vendor that allows for a volume discount of a set $ amount (let's say $100,000) once making let's say $1,000,000 in purchases. There is no time expectation for this discount. Meaning that the discount is given whenever the $1,000,000 threshold is reached regardless of whether it takes 2 months or 2 years. Currently, the purchase threshold is reached about every 13 months, which triggers a $100,000 payment to us the next month. It is likely that we will continue to reach this threshold about every 13 months. Should we recognize the benefit of this discount each month as we get closer to the threshold of $1,000,000? What would be the journal entry once we actually earn the $100,000? What would be the entry once we receive the $100,000?
I appreciate everyone's help!
I have a question on how purchase threshold discounts should be recorded by the purchasor not seller. I find plenty of information from the seller's perspective related to revenue recognition, but I'm not as comfortable with the accounting from the purchasor's perspective. I am performing an audit of the purchasing function. They have an agreement with a key vendor that allows for a volume discount of a set $ amount (let's say $100,000) once making let's say $1,000,000 in purchases. There is no time expectation for this discount. Meaning that the discount is given whenever the $1,000,000 threshold is reached regardless of whether it takes 2 months or 2 years. Currently, the purchase threshold is reached about every 13 months, which triggers a $100,000 payment to us the next month. It is likely that we will continue to reach this threshold about every 13 months. Should we recognize the benefit of this discount each month as we get closer to the threshold of $1,000,000? What would be the journal entry once we actually earn the $100,000? What would be the entry once we receive the $100,000?
I appreciate everyone's help!