A Better Way to Book Purchase Discounts

b7783-aipbIf your company routinely takes all purchase discounts, you can simplify your record-keeping by recording all purchases at the net rather than gross amount.  Record missed discounts in a Purchase Discounts Lost account using the net-price method, as follows:

Your company receives an invoice for $10,000 with credit terms of 2/10, n/30.  Under the net price method, the following entry is recorded:

To record receipt of invoice:

Purchases   9,800
Accounts payable    9,800

To record payment:

Accounts payable   9,800
Cash 9,800

If, for any reason, the bill is not paid on time, the entry is:

Accounts payable 9,800
Purchase Discounts Lost 200
Cash    10,000

The Purchase Discounts Lost account does more than simplify bookkeeping—it brings attention to money-saving discounts that your firm may be missing.

For more information or to hire a professional bookkeeper please contact us – info@laebusiness.com

Share Button

Leave a Reply