If 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