Tip Of The Month
A Better Way To Book Purchase Discounts
If your firm 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 firm 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 calls
attention to money-saving discounts that your firm may be missing.
If your firm 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 firm 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 calls
attention to money-saving discounts that your firm may be missing.