Discount on purchase invoice

GST amount doesn’t have to be exactly the same as is on your supplier invoice. In these cases it is permissible for GST amount to be a few cents higher or lower due to rounding.

The 3% discount relates to the total amount owing and doesn’t relate to an Invoice - eg a payment discount not a product discount, therefore you shouldn’t be adjusting the Invoices. The best way to account for the discount is during the processing of the payment.

Spend Money (2 options)
Account = Accounts Payable - Invoice = nnn - Amount = 725.04
Account = Discounts - Amount = -21.75 (note the minus sign)
Payment Total = 703.29

Account = Supplier Credits - Supplier = XYZ - Amount = 725.04
Account = Discounts - Amount = -21.75 (note the minus sign)
Payment Total = 703.29

@Brucanna’s approach is one I was also going to recommend after reading @ykfoo2323’s most recent postings. I will add one caution, however. It is important to understand the implications for tax purposes as I mentioned earlier. This is a topic on which you should get advice from a qualified local accountant who understands local tax laws.

Remember that financial accounting and tax accounting are not always the same. There may be options for how you treat the discount that are more or less favorable to you while still being legal. These options will essentially come down to the choice of whether to discount the selling price (and possibly the associated tax) or discount the payment (which might be considered income in some jurisdictions).

Sometimes, our suppliers are not actually providing much benefit to us when offering a discount. It can sound good but create more trouble than it is worth. :wink:

As long as the Suppliers Invoice is accurately recorded there are no tax implications.

A cash discount or a settlement discount is just that. Nothing tricky or complicated.

There is ABSOLUTLY no correlation between the cash discount and the selling price. The cash discount is an act of goodwill by the supplier and doesn’t impose any ongoing conditions. What if the cash discount was given on an asset purchase (computer printer) - what then …??

Let not create ambiguity and hysterical hyperbole around very basic everyday accounting

I disagree. There may be tax implications, depending on the form of the tax. For example, a sales and use tax levied specifically on the privilege of purchasing or using tangible property within a tax jurisdiction, as is the case in some locales, can be reduced if one can demonstrate a reduction of the corresponding sales price. A simple example will suffice:

You purchase an item from a dealer offering a 30-day price matching guarantee and pay the required sales and use tax, based on a fixed percentage of the price. Two days later, a competing dealer advertises a lower price, so you return to the dealer with the competitor’s advertisement in hand. The original seller refunds a portion of the price you paid plus a prorata portion of the sales and use tax you paid. Thus, you have been extended a discount after the original purchase, but there were tax implications, in this case favorable to you. No ambiguity, and no “hysterical hyperbole.”

Local laws may also specify that taxes are levied based on manufacturer’s list prices, irrespective of price actually paid. A seller may offer a discount to obtain your business but be unable to reduce the tax to match. In this case, the tax implications were unfavorable to you. This can be a common situation with high-priced items such as motor vehicles, which might be subject to fraudulent transactional price reporting in an attempt to lower the tax levied. Once again, no “hysterical hyperbole.”

All I am pointing out is that tax laws vary, and sometimes there are specific provisions covering how discounts are treated for tax purposes.

This would be a completely separate recordable transaction, you WOULD NOT amend the original transaction invoice to incorporate the subsequent refund - to do so would be very extremely poor accounting practise.

All those illustrated scenarios may or may not exist, but if they did then the Supplier, as the charger of the tax, would be responsible for the correct taxable position - not the Purchaser. Therefore, as I said, as long as you record the Suppliers “documentation” accurately there are no tax implications.

Otherwise you are suggesting that the sale of a item by a Supplier to a Purchaser could have differing tax treatments recorded in their respective sets of accounts - I don’t think so.

So to repeat, the Supplier has the responsibly for charging the “local law” related taxes regardless of how the transaction may unfold and the Purchaser has the responsibility to accurately record the Suppliers documentation so “there are no tax implications”.

If the tax remains unaltered how is that 'unfavourable" - more like status quo

Actually, there is a tax implication, but it’s AFTER payment. That is you have to record the settlement discount as Income somewhere in the P&L.

It may be a terminology thing, but Settlement or Early Pay discount is an incentive offered by the Vendor to pay earlier than the standard terms. It has nothing to do with items purchases or services billed.

I agree that’s it is fairly common practice for the calculation of this to be automated within the payment process. Normally you have a second due date - the wording something like “1% Settlement if paid 14 days otherwise Net 30”. So prior to the 14 day due date, the system offers the option to reduce payment by 1% on invoices with this allowance - after the 14 days you should pay the total invoice.

HTH