Accounting of Penalty

[malnahar]

Hi,

What would be the accounting entries for penalty I deduct from the supplier’s invoice? ( Fixed Assets - Building )

Example :
Agreement Value : 4 USD
Work Completed by the supplier : 100% ( Construction of a New Building )
Penalty deducted from the supplier’s invoice : 1USD due to damages caused by the supplier to existing building adjacent to the construction site
Net Amount Paid to the Supplier : 3 USD

Thanks

 

[kirby]

You have two separate events so record them separately.
1. You owe for construction of new building
DR New building $4USD
CR Payable to supplier $4USD

2. Supplier damaged existing building -will cost $1USD to repair
Dr Receivable from supplier $1USD
CR Payable to repair crew $1USD (this is net or you can show it in more detail showing the loss and the claim"

3. then payment to Supplier of $3USD as
Dr Payable to Supplier $4USD
Cr Cash $3 USD
CR Receivable from supplier $1USD

The key point is that the new building cost is recorded at $4 USD not the net of $3 USD