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Vendor Discounts in SAP

Former Member
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Hi,

What is the difference btw cash discount and trade discount?

In SAP how the vendor discounts are provided in both FI and MM.

I know that the discount will be calculated through payment terms.

But in purchase order, in condition tab, I can see the price breakup, discount, taxes etc.I guess it is from pricing procedure.

So my question is, discount will be calculated from payment terms in both FI and MM

or is there any other procedure to calculate the vendor discount in SAP.

I need 1 more clarification. What is the purpose of pricing procedure and why the discount will be included in pricing break up.

Will the discount which is there in pricing proceedure, appeare in the books of accounts?

I need to prepare a functional document for vendor discounts in SAP.For that i want these clarifications.

Pl answer me.

Thanks

Radhika Eluri

Accepted Solutions (0)

Answers (3)

Answers (3)

Cora_Phelan
Product and Topic Expert
Product and Topic Expert
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Hi

Please review note 514938 FAQ: Tax and cash discount base, cash discount

with kind regards

Cora

Former Member
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Hi,

The discount coming through Calculation Schema are based on condition types and you can term it as a Trade discount

decided by the Vendor for purchase based on quantity or based on total value of purchase and the price is arrived at

whereas cash discount is based purely on payment terms.

Best Regards,

Sadashivan

Former Member
0 Kudos

Hi,

Cash discount is given when the vendor is paid according to the payment terms. If the vendor is not paid within the date mentioned in the payment term, the cash discount is lost. This is not reflected on the invoice.

Trade discount is given based on the deal finalised. This discount is given on the price of the material and the net payable is reduced in the bill itself.

Based on the above explanation - normally cash discount is calculated at the time of payment and based on the payment terms while trade discount being a component of invoice, is calculted based on the pricing procedure.

If there is a discount calculated based on the pricing procedure, the accounting entry will be passed based on the GL account assigned to the account key which is linked to the condition type for discount.

please revert for further clarification.

Thanks and Regards,

Anit

Former Member
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Hi Anit,

It is very useful answer.With this i got clear idea btw cash and trade discounts.

So the discount which is calculated from pricing proceedure is only reflected on invoice? If the entry is posted for this then what would be the general entry?

Thanks

Radhika

Former Member
0 Kudos

Hi,

At invoice level the Material price inclusive of discount (Actual Price) + taxes will be the payable amount.

The Vendor is debited by this amount with tax amount and GR/IR A/c is credited.

Regards,

Sadashivan

Former Member
0 Kudos

Hi,

Yes, the discount calculated from the pricing procedure is reflected on the invoice. The entry would be - Say the price of the material is Rs 5000 and a discount given for Rs 500.

Expense/Purchase A/c Dr. 5000

Discount Received A/c Cr. 500

Vendor A/c Cr. 4500.

Note - There can be some exception on the discount being shown/printed on the invoice, if the vendor does not want to. This might be done so that the discount given to one customer is not know or leaked to another customer.

Do revert for any further clarification.

Thanks and Regards,

Anit

Former Member
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Thank you so much.Very much useful answers.

Former Member
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Hi,

Sorry Anit. The discount you are mentioning in those entries are not picked from the PO conditions. Rs.500/- discount

here in Invoice is based on Payment terms that is displayed in Invoice. If you see the basic data tab in invoice, it will show you

the actual price which is inclusive of discount plus tax amount for the tax code you entered in Invoice tab of PO.

The discount is absorbed in the actual price in PO itself. If you go on for follow on documents there also you cannot see the

discount because it is cash discount which comes into picture only during payment. After making payment, you can simulate the

document and see the discount account in the transaction.

Please check and revert back.

Regards,

Sadashivan

Former Member
0 Kudos

Hi Sadashivan,

Accounting for the discount on the base price is as per the client's requirement. Normally if it is calculated on the invoice and the client wants to record it separately, an account key is assigned in the pricing procedure and linked to the condition type.. In this case, the accounting entry will be made to record the discount received.

The discount coming from payment term will always be recorded at the time of payment -

Vendor A/c Dr. 5000 (Debit the rec)

Discount A/c Cr. 500 (Income)

Bank A/c Cr 4500 (Cr. what goes out)

Thanks and Regards,

Anit

Former Member
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Hi,

I had a quick glance on conditions tab in PO in item details tab.I have assigned a payment term in this PO.So here the cash discount is deducting from the gross price.

I have defined 2% cash discount in payment terms.This cash discount is deducting from the gross price in conditions tab.

But as per your commends,the discount which deducts from gross price of the material which we see in conditions tab is trade discount.

But here in my case the cash discount is deducting from materilal gross price as it is apperaing in the conditions tab in PO.

Can you give me the clarification.

Thanks

Radhika Eluri

Former Member
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Hi Radhi,

I agree with the fact that cash discounts are maintained in the PO pricing which is theoretically wrong unless the payment terms is 100% advance.

The explanation I had given on cash discout and trade discounts are correct, but in practise, they might not be followed completely. One will have to understand why the client is using cash discount calculation in PO. At my clients place we have that condition type only if it is a 100% advance payment, i.e, the vendor is paid before the material is received.

Hope this clarifies.

Thanks and Regards,

Anit

Former Member
0 Kudos

Please suggest to post the vendor discount as given below:

material price - 100, discount 10%

Posting required:

Inventory account 100 (discount not be effect inventory)

GR/IR 90

Discount clearing account - 10