QuickBooks Training Post:
A dilemma for many small business owners is whether or not to take advantage of early-pay vendor discounts.
Often, suppliers will offer payment terms like 2% 10/NET 30. The buyer can receive a 2% discount if they pay the amount due in ten days rather than the standard thirty.
The disadvantage to this is using cash more quickly. One insufficient funds check because you ran your bank account too close to zero will probably nullify any savings from taking the discount.
The advantage, of course, is the discount. You save on a 00 invoice. It doesn’t sound like much, but the is for paying only twenty days earlier than required. Someone at accountingcoach.com did the math and figured that’s about a 36% annual rate. Enough to make any banker smile.
Here’s how to track vendor discounts in QuickBooks.
The first and important step is to setup vendors correctly. Be aware of the terms they offer you. Set those terms up correctly in the vendor information window in QuickBooks.
This way, when you create a bill for this vendor, you don’t have to remember to set the terms and due dates correctly on the bill. QuickBooks will pick that information up from what you have entered in the vendor file and enter it on the bill for you.
It would be nice if we could find a better way of getting QuickBooks to keep us aware of discount dates. The best we can do at this point is to create an Unpaid Bills Detail report. Then, through the Customize Report button, add a column for Terms.
When it comes time to pay, a bill that is eligible for a discount will show plainly in the Pay Bills window.
The date in the Disc Date column clearly shows for all bills that have a discount available. Selecting the bill by placing a check in the left column makes the discount information (circled in the screenshot) appear.
Click on the Set Discount button and you will see the following popup window.
The amount is suggested as QuickBooks does the math. It can be changed.
The account we use here is a cost of goods sold type of account.
Since this is from a supplier of the goods and/or services the QuickBooks company then resells, those expenses would normally post to a COGS type of account.
Using this account will cause the amount of discounts taken to show up as a negative amount in the cost of goods sold portion of the company’s profit and loss report. That’s the way Rock Castle Construction would like to see it.
Completing the process by clicking done will cause the check to be created for the bill, less the discount. In this case, 6.60.
Above is a portion of a profit and loss report from our sample company. You can clearly see the discount amount as a line with a negative amount in the cost of goods sold section of the report.
Source: Hector\’s QuickBooks Blog