Vendor discounts

[Former Member]

Can someone please explain me what account should be established "Cash discount taken" or "Cash discount lost" if the vendor discounts are tracked at gross. And which account "Cash discount taken" or "Cash discount lost" to create if the vendor discounts are tracked at net.

Please also explain why would that the particular cash discount account be established for each tracking type (net and gross).

Explain with example

Thankyou very much

[Former Member]

Hi,

Generally Cash discount not taken because of the buyer's failure to pay within the specified time period. The discount lost occurs only when purchases are recorded net of the discount. If the discount is not taken advantage of, the gross amount will be paid. Assume a 1000 purchase on terms of 2/10, net/60. The journal entry for the purchase is to debit purchases and credit accounts payable for 980. If payment is made after 10 days, the entry is to debit accounts payable 980 and purchase discount lost 20 and credit cash 1000. Purchase discount lost is an expense account.

Muralikrishna.Ch

[Former Member]

Hi Lakshmi Reddy

Cash Discount Lost, would be used when you use Document Type "KP", where in your invoice would be booked at net value after deducting the discount as per the payment terms. The facility is instead of getting discount during payment, system would post the invoice with net value, provided the payment against particular invoice is made as per the payment terms.

If the payment is made after the due date, then discount availed earlier would be posted to Cash discount Lost

I hope now its clear to you.

Regards

Chandrasekaran A

[Former Member]

Thanks for your answer. Now I am able to understand the cash discount lost part of it

So what I gather is that for "cash discount lost" the disocount is calculated during invoice posting and for "cash discount taken" is calculated during payment run.

Is my understanding correct.

[Former Member]

Also if someone can clarify that if the client tracks discount at gross, then do we need to setup the account for cash discount lost or not,in addition to setting up the account for cash discount taken?

If not, then how would they know how much discount they lost, even if they track discount at gross.?

thanx

[Former Member]

Hi,

As per my knowledge, Cash Discount received & Cash Discount allowed are the two concepts are related to Profit & Loss account (Vendors & Customers.) Generally when we make payment to Vendors we go through Payment Terms T.Code OBB8. As per the Payment terms we do business with Vendors & Customers.

Payment Terms Like if a Bill of Rs.1,00,000/- Invoice from Vendor - if we make payment within <10 Days discount received 3%, >10 - <20 days 2% and >20 - <30 Days No Discount received as well as payment received from customer. the same terms we can use othwise we may create based on our company wish, it is also configure in OBB8.

For this We have to Create 2 GL Accounts in FS00

1)Cash Discount Allowed - Expenses Group - Customers

2)Cash Discount Received - Income Group - Vendors

Configuration of the above accounts

T.Code OBXI - Cash Discount Allowed

Select Accounts Give the Co.Code Account Number which you created in GL Master Expenses Group

Select Posting - Select Debit & Credit Check Box

Save

T.Code OBXU - Cash Discount Received

Select Accounts Give the Co.Code Account Number which you created in GL Master Income Group

Select Posting - Select Debit & Credit Check Box

Save

Then Whenever you make a payment & receive we select payment terms which we areated in OBB8 then it allows entry to post cash discount Allowed & Received, it comes in blue font. double click on it enter + Save.

If useful don't forget to reward.

Thanks & Regards,

Muralikrishna

[Former Member]

Thanks for your answer. But My question was for "cash discounts paid" and "cash discount lost" from vendors?

In what scenarios do we configure "cash discount lost". I understand that we need to configure account for "cash discount received" from vendor when we need to track gross not net. Is my understanding correct. If so, are we looking at discounts on the invoice + taxes etc.

Do we also need to set up the account for "cash discount lost" if we track discounts on gross? Or do we do it when we track discounts on net? If yes, then how is it configured adn how do teh lost discounts go to this account?

Will definitely assign points if get my answer.