more-arw search

Q&A Forum

Vendor credit on future purchases

David Weinheimer's Profile

A vendor delivered faulty product on a couple projects, for which we paid full price for the goods. They arranged to provide us full credit for the faulty product to be applied to future purchases, even though they replaced the faulty product at no additional charge.

I was planning on handling the accounting for this by crediting cost of goods on the current projects and debiting a receivable for this vendor. I will then process purchases on future projects and charge the full amount toward those projects. But, when payment is made, I will credit cash for the net amount and put the difference toward the receivable.

This way, I recognize reduced costs on the projects that received faulty product (which created the credit in the first place), and full cost on the future projects for (where we actually realized the credit upon actual payment to the vendor).

Do you agree with this approach?

Answers

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

First, document the credit (ask for a credit memo from the supplier?).

Second, I would recognize the credit as Other Income via A/R (or some other Receivable account) and recognize the cost of goods (the faulty and replaced items) AS IS. Future purchases and corresponding recording will depend on how the vendor applies THAT credit to their invoices. i.e. sometimes vendors don't issue out the full credit amount one time.

I'd rather NOT skew the cost of the current project and other future project costs. The costs still remains the same....it will be the manner of payment that will change or differ. From another perspective, costs remains the same, it is the CASHFLOW that is affected.

314 views

Get Free Membership

By signing up, you will receive emails from Proformative regarding Proformative programs, events, community news and activity. You can withdraw your consent at any time. Contact Us.

Business Exchange

Browse the Business Exchange to find information, resources and peer reviews to help you select the right solution for your business.

Learn more

Contribute to Community

If you’re interested in learning more about contributing to your Proformative community, we have many ways for you to get involved. Please email content@proformative.com to learn more about becoming a speaker or contributing to the blogs/Q&A Forum.