Saturday, May 16, 2015

A Better Way to Book Purchase Discounts

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
If, for any reason, the bill is not paid on time, the entry is:
Accounts payable9,800
Purchase Discounts Lost200
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 –