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postsf
11-12-2010, 05:32 PM
Hi Everyone

When we pay a vendor bill early the discount goes to 'Earned Discount' which is an Income account. We don't want this under Income. We want it changed to be in the COGS area since the vendors we are paying and getting the discounts are for inventory purchases (COGS).

I know this can be changed in the preferences but when this is done, the discount shows as a negative amount in COGS which won't work.

Does anyone know of a way to change this?

Thanks.

Joe Williams
11-13-2010, 05:21 AM
COGS is a contra income account so it acts like an expense type, Credit will reduce it and Debit will increase it.
Normally AP discounts would go to an expense account to reduce the expenses.

postsf
12-01-2010, 03:40 PM
Does anyone have any ideas? I'm running out of time. Thanks.

RobJoy
12-02-2010, 01:13 PM
You could create a Bill Credit for the discount - which you can then hitch to a Discounts account under COGS - and use Set Credits when you record the bill payment to set it against one or more of the bills you're paying.

Joe Williams
12-02-2010, 04:47 PM
I think that POSTSF does not like the fact that posting a vendor discount to COGS creates a negative entry in COGS.

A Debit will increase COGS and a Credit will decrease COGS.
The vendor discount should be tracked as Income or you can reduce the value of the inventory items by the amount of the discount. If there are more than one item on the bill, you need to manually pro-rate the discount to all of the items on the bill.

qbqcca
12-03-2010, 12:04 AM
I have a completely different approach to dealing with 'Earned Discounts'

To me 'Earned Discounts' is Financial Gain, not to be confused with an wholesale discount on a purchase which is a legitimate COGS item.

The cost of the purchase, is the cost on the supplier bill.

The early payment discount is just that, a payment discount based on your ability to pay early and as such is a "Financial Gain".

If you couldn't pay the suppliers bill early then you wouldn't get the discount. Therefore it is a discount based on your ability to pay, and has nothing to do with your COGS.

Changing the cost of your purchase 15 of 20 Days after you have recorded the purchase just doesn't make any sense. Especially if your using the Inventory Function, you are now potentially changing the cost on an item or items you may have all ready sold.

It also will play havoc on your GPM as you are recording a discount based on your ability to pay rather than your ability to purchase.

In my COA in have a "Financial Expense" category which I use for the following Financial Expenses in the "Expense Category" of my COA :-

6900 FINANCIAL EXPENSE

.....6911 Interest charged by Supplies
.....6912 Credit Card Interest (On Company Credit Cards)
.....6913 Annual Fees (Credit Card Annual Fees)
.....6914 Suppliers Fees
.....6915 Interest on short term Loans
.....6916 Credit Card Discounts (Charged by the Credit Card Companies)
.....6920 Sales discounts (Early Payment Discounts by Customers)
.....6930 Purchase discounts (Early Payment Discounts)
.....6940 Finance charges billed
.....6950 Interest on long term debt
.....6960 Bad debts
.....6970 Bad debts recovered
.....6980 Interest earned
.....6985 Exchange (Gain) or Loss
.....6990 over/short

Yes I know that a financial Gain should not be a reduction of Expense, however it also has nothing to do with COGS. I have been doing my books this way for over 40 years, and depending on the Accounting Firm doing my Tax Returns they may reclassify my "Purchase Discounts" as "Other Income" on their Formal Financial Statements. I've been using the above format for "Financial Expense" keep all my Finance Cost of doing Business in one place.