clip_image001While doing accounts payable have you ever wondered how much money you would save if you paid the invoice in time to take the discount? Or do you take the discount when you can?

A good way to track discounts is to record missed discounts in a Purchased Discount Loss account using the net-price method.

Your company receives and invoice for $2,000.00 with a credit term of 2/10, n/30. Under the net price method, the following entry is recorded:

Entry to record invoice:
Purchases $1,960.00
Accounts Payable $1,960.00

To record payment:
Accounts Payable $1,960.00
Cash $1,960.00

If the bill was not paid in time to take the discount, the entry is:
Accounts Payable $1,960.00
Purchase Discounts Lost 40.00
Cash $2,000.00

The Purchase Discounts Lost not only simplifies bookkeeping, but it calls attention the money-saving discounts you may be missing.