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How do I enter a payment on account where a cash discount has been allowed - specifically the cash discount portion of the transaction?
Hi Brian & Cindy!
This is kind of a "depends on" question. It depends on how you enter the original purchase. Do you use payables to track your purchases, and apply payment against them? Or do you simply enter you expenses as you write your cheques?
1) If you use the payables module to track your purchases, then in your expense section of the chart of accounts, you need to set up an account called "Discount on purchases made" (or something similar to that). Any discounts your receive (for early payment, for example) will be offset into this account. This is what we call a "contra-expense" account, because the balance of this account will always be negative. This is used because you can't always track the discount to a specific expense account.
2) If you write cheques and claim expenses at that time, you can still elect to use the discount expense account if you like - quite honestly, it makes life a lot easier! But a lot of people choose to simply reduce their expenses by the amount of the discount. This is especially true if the invoice is for a single expense (such as the purchase of fuel, or the purchase of small tools). I would advise, though, to use the discount expense account if at all possible.
I hope this helps a bit!