Accounts Payable-How do I handle the discount taken?


J

Jack Garabito

I am new at an A/P position and am not sure how to handle the discount taken
for prompt payment of invoices (2/10, net 30). If the invoice is for $100
and it gets paid before the 10 days are up...what is the proper way of
recording it/processing it?
Accounts Payable-Debit $98, where does the $2 discount get recorded? There
is no record that the prior A/P person recorded any discounts.

Share your knowledge and give me some advice.

Thank you all that respond.
Jack
 
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P

Paul Thomas

Jack Garabito said:
I am new at an A/P position and am not sure how to handle the
discount taken for prompt payment of invoices (2/10, net 30).
If the invoice is for $100 and it gets paid before the 10 days
are up...what is the proper way of recording it/processing it?



The proper way always gets overruled by the way the boss wants it done.



Accounts Payable-Debit $98, where does the $2 discount
get recorded? There is no record that the prior A/P person
recorded any discounts.

Share your knowledge and give me some advice.



Credit the full $100 to the client (else they get PO'd), Debit the $98 cash
received to the bank (cause that's what you got), and Debit an expense
account called "Discounts" or some such nonsense. That's the nuts and
bolts of it, but there may be a function through your AR program that allows
you to book the discount (sending it to the expense account). Then you can
run a report of who takes the discount.
 
B

Beverly

Paul,

Looks to me like the OP was TAKING a discount upon paying a vendor.

Jack,

If this is the case, you would debit the A/P account for the full
amount and credit cash for the amount you actually paid and credit a
purchase discounts account for the difference. Oftentimes, software
will allow you to choose an additional credit account whether that be
for credit memos or purchase discounts.

The proper way always gets overruled by the way the boss wants it done.








Credit the full $100 to the client (else they get PO'd), Debit the $98 cash
received to the bank (cause that's what you got), and Debit an expense
account called "Discounts" or some such nonsense. That's the nuts and
bolts of it, but there may be a function through your AR program that allows
you to book the discount (sending it to the expense account). Then you can
run a report of who takes the discount.
Beverly
 
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P

Paul Thomas, CPA

Beverly said:
Paul,

Looks to me like the OP was TAKING a discount upon paying a vendor.


Hmm.....I didn't look at it that way, but you may be on target.
 

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