Purchase Discount

[Rmunson]

I need to set up a G/L account so we can take the discount from vendors that offer a discount for paying early.

What would be the correct G/L account to use.

If we received an invoice for product that amounted to $1,000 with a 2% 10 days net 30 days what would be the correct posting? I think it would be:

Debit $1,000 to Accounts Payable

Credit $980 to Cash (Bank Account)
Credit $20 to Purchase Discount - Account ????? (Cost of Goods Sold 5000 Group ?)

Thanks in advanced for the assistance.

Bob

 

[kirby]

Typically you do this:

You set up the payable at the net amount

DR Expense $980
CR Invoice Payable $980

If you pay within discoount period
DR Invoice Payable $980
Cr Cash $980

If you do not and lose discount
DR Invoice Payable $980
Dr Discounts Lost Expense $ 20
CR Cash $1,000

 

[Nabeel]

Lets say you availed the discount the double entry would be:


Dr. Accounts Payable $1000

Cr. Discount Recieved $20
Cr. Bank/Cash $980

Hope this helps. Thanx

Nabeel