View Full Version : Early Payment Discounts Against COGS
11-12-2010, 05:32 PM
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?
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.
12-01-2010, 03:40 PM
Does anyone have any ideas? I'm running out of time. Thanks.
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.
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.
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.
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