Purchase discount is an offer from the supplier to the purchaser, to reduce the payment amount if the payment is made within a certain period of time. For example, a purchaser bought a $100 item, with a purchase discount term 3/10, net 30. If he pays within 10 days, he will only need to pay $97. If he pays half the amount In
accounting
Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "languag ...
,
gross method and
net method are used to record transactions of this kind. Under the gross method, the total cost of purchases are
credit
Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt), ...
ed to
accounts payable
Accounts payable (AP) is money owed by a business to its suppliers shown as a liability on a company's balance sheet. It is distinct from notes payable liabilities, which are debts created by formal legal instrument documents. An accounts payable ...
first, and discounts realized later if the payments were made in time. Under the net method, purchase discounts are realized right away. And if the payments are not made in time, an anti-
revenue
In accounting, revenue is the total amount of income generated by the sale of goods and services related to the primary operations of the business.
Commercial revenue may also be referred to as sales or as turnover. Some companies receive reven ...
account name
purchase discounts lost is
debit
Debits and credits in double-entry bookkeeping are entries made in account ledgers to record changes in value resulting from business transactions. A debit entry in an account represents a transfer of value ''to'' that account, and a credit en ...
ed to record the loss.
References
1. Intermediate Accounting 8th Canadian Edition, page 439, Kieso, Weygandt, Warfield, Young, Wiecek, John Wiley & Sons Canada, Ltd, 2007, {{ISBN, 978-0-470-83979-9
Procurement
Working capital management