Configure cash discounts
Watch this video to learn how to configure cash discounts.
Scenario
The company USMF obtains a cash discount if it pays vendor invoices within certain dates. USMF has set up the following codes:
- 5D10% - Cash discount of 10 percent when the amount is paid within five days.
- 10D5% - Cash discount of five percent when the amount is paid within ten days.
- 14D2% - Cash discount of two percent when the amount is paid within 14 days.
The three cash discounts occur sequentially as the cash discount date nears. However, only one cash discount is granted.
- To specify the cash discounts following the 5D10% code, the 10D5% code is selected in the Next discount code list.
- For the 10D5% code, the 14D2% code is selected in the Next discount code list.
- For the 14D2% code, the Next discount code is left blank. You can assign cash discounts to vendors, journals, or purchase orders.
Accounts payable > Payment setup > Cash discounts
Cash-discount administration field setup
Go to Accounts payable > Setup > Accounts payable parameters page, on the Settlement tab, in the Cash-discount administration field, and select what you want to do with an overpayment or underpayment when a cash discount is not deducted. This Accounts payable parameter must be set up correctly before an invoice is settled.
If you select Unspecific, the underpayment amount is posted to the vendor cash discount account. If the applicable cash discount was posted in the same company as the overpayment, Finance will adjust the cash discount.
If the applicable cash discount was not posted in the same company as the overpayment, it is posted to the system cash discount account. If there are multiple cash discounts so that an overpayment was settled against multiple invoices, the adjustment to the discount is from the last invoice to the first discount.
If you select Specific, the overpayment or underpayment amount is posted to the vendor cash discount account.
To better understand these two options, consider the following example:
A vendor's invoice total is 105.00 USD, and the obtainable cash discount is 10.50 USD. Considering the cash discount, the vendor will be paid 94.50 USD (105-10.50).
However, the amount actually paid to the vendor is 95.00 USD.
If the Cash-discount administration parameter is set to Unspecific, the invoice is settled, and the difference of 0.50 USD is posted to the ledger account specified for cash discount differences.
If the Cash-discount administration parameter is set to Specific, the invoice is settled, and the difference of 0.50 USD is posted to the vendor's cash discount account.
To specify that the cash discount is calculated based on the amount plus sales tax, go to General ledger > Ledger setup > General ledger parameters, and then select the Sales tax tab. Expand the Tax options FastTab.
You must enable the Cash discount is calculated on amount including sales tax option in the Vendor cash discount area.
