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Who gets the cash discount?

Dave Hartung's Profile

I'm an engineer but I'm getting my MBA so I've started sticking my head in places it doesn't belong. I have a question regarding cash discounts.

Say I buy something for $1000, I receive it, it gets invoiced and paid. The payment terms are 2/10 net 60. We pay within 10 days so the check is for $980. My opinion is that the debit in my cost center should be $980. However, the debit that is showing up is $1000. I can't seem to find where the cash discount is accounted for (if it is accounted for at all).

How do other companies typically account for the cash discount? Does the cost center that purchased the material get the discount, or does it go to some corporate cash discount ledger account (I'm throwing out accounting terms that I may be using incorrectly...apologies). To me, it seems like it should go to my cost center. If my budget is $1 million and we pay everything within 10 days, that's an extra $20,000 I can use throughout the year.

Any insight would be appreciated!

Answers

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Purists may say the payment discount is a financing, not a purchasing, based issue. This differs from purchase discounts, which are part of the invoice total. So the purchaser is charged the invoice cost. So it's quite likely the discount is tracked as "other income."
But if your company basically always pays early to gain the discounts, then you can argue the net cost ($980) is what you should see as your cost.

Go negotiate with your CFO:)

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