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Topic
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1. How do you handle purchase discounts taken on invoices you pay early? I have generally seen them expensed in the month the invoices are paid especially when immaterial.
DR. Accounts Payable
CR. Cash
CR. Purchase discount (income statement usually in COGS)
2. On the other hand, I have also seen inventory values reduced.
DR. Accounts Payable
CR. Cash
CR. Inventory (obviously balance sheet)
I guess my take on this is that if we are really considering the matching principle there should be some sort of allowance account setup for purchase discounts in the same way that sales discounts match the revenue and not the month they are actually taken by the customer. Maybe I am dialing way too far in on this, but purchase discounts can be a pretty large account in a Fortune 500 company.
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