About Discounts

You can have discount amounts, discount dates, and due dates automatically computed for transactions entered in the AP Transaction Entry, AP Unapproved Invoice Entry, and/or AP Recurring Invoice Entry forms.

The system uses the payment terms (from HQ Payment Terms) assigned to each vendor in the AP Vendors form to calculate discount amounts and to determine due/discount dates. If using discounts, you can control whether or not discount amounts are subtracted from the invoice amount when an expense batch is posted. The Post Discounts Offered to GL and Net Amounts to Subledgers checkbox in the AP Company Parameters form is used to determine how discount amounts are expensed.

  • Expense Full Gross Amounts - This is the typical choice and is implemented by leaving the Post Discounts Offered to GL and Net Amounts to Subledgers checkbox unselected. This causes the system to expense each invoice’s gross amount to GL and the subledgers at posting time. Later, when the invoice is paid, any applicable discount is credited to the designated Discount Taken GL Account specified in AP Company Parameters.

  • Expense Net Amounts - This option is implemented by selecting the Post Discounts Offered to GL and Net Amounts to Subledgers checkbox. This causes the system to expense each invoice’s net amount (gross less discounts) to GL and the subledgers, and, at the same time, the designated Discount Offered GL Account (AP Company Parameters) is debited with the discount amount. Then, when the invoice is paid, the discount is credited to the Discount Taken GL Account. When this option is used, the system always requires that the discount amount entered when posting the transaction be taken at payment time (regardless of whether or not the payment date is after the discount date). This is because the net amount is expensed to GL when the invoice is entered and, therefore, it must post the same net amount when processing the payment.
  • Tax Discounts - If you offer discounts, you also have the option to implement tax discounts. Tax discounts allow you to calculate tax on the discounted invoice amount instead of the invoice's gross amount. In order to use this feature, you must check the "Using Tax Discounts" option in AP Company Parameters. When checked, the system automatically calculates tax discounts whenever transactions include a discount.

    When entering invoices (in AP Transaction Entry and AP Unapproved Invoices), tax discounts are calculated by first subtracting the discount amount from the invoice's gross amount, then calculating tax on the resulting value (i.e. tax basis). The tax amount is then added to the gross amount, and the discount subtracted from the total.

    For example if the invoice gross amount is $1,000, the discount amount is $50.00, and the tax rate is 6.5%, the system calculates the tax amount as follows:

    $1000.00 - $50.00 = $950.00

    $950.00 x 6.5% = 61.75

    $1,000.00 + 61.75 - 50.00 = $1011.75

    When initializing invoices for payment (AP Payment Workfile, AP Payment Initialize), the offered (tax) discount is automatically taken when the invoice is flagged for payment.

How Discounts are Calculated

AP Transaction Entry Form

AP Unapproved Invoice Entry Form

AP Recurring Invoices Form

AP Company Parameters Form