USA Who gets the cash discount?


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I'm an engineer but I'm getting my MBA so I've started sticking my head in places it doesn't belong. I have a question regarding cash discounts.

Say I buy something for $1000, I receive it, it gets invoiced and paid. The payment terms are 2/10 net 60. We pay within 10 days so the check is for $980. My opinion is that the debit in my cost center should be $980. However, the debit that is showing up is $1000. I can't seem to find where the cash discount is accounted for (if it is accounted for at all).

How do other companies typically account for the cash discount? Does the cost center that purchased the material get the discount, or does it go to some corporate cash discount ledger account (I'm throwing out accounting terms that I may be using incorrectly...apologies). To me, it seems like it should go to my cost center. If my budget is $1 million and we pay everything within 10 days, that's an extra $20,000 I can use throughout the year.

Any insight would be appreciated!
 

bklynboy

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We keep the discount in a corporate cost center to manage the savings for spends that are most beneficial to the company. To your point if left in your own CC, you may use it to fund something else that is not as important as a spend elsewhere or used as a save to produce higher earnings. You received the service/product you needed and just because its negotiated lower does not permit you to spend it for another reason - especially one that was not budgeted. Also, at my organization negotiation of price and discounts taken is done through vendor management and not the cost center manager.

This all falls under a good expense management policy where each CC simply gets the product/service they need and any spends required above that need should go through a prioritization committee to identify where it should, if at all, be used.
 
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Interesting point of view. Thanks for the response.

My only complaint would be that, in my hypothetical scenario, it looks like it costs $20,000 more per year to run my manufacturing plant than it actually does.
 

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