How Discounts are Calculated

An outline of the setup and processing steps to calculate discounts on payable invoices. For more general information, see About Discounts.

Setup

AP Company Parameters:

If you elect to expense the full gross when posting the discounts amount (the common and recommended method), leave the Post Discounts Offered to GL and Net Amounts to Subledgers check box selected and assign a valid GL Account in the Discount Taken GL Account field.

If you elect to expense net amounts when posting discounts, select the Post Discounts Offered to GL and Net Amounts to Subledgers check box. You also need to assign a valid GL account to both the Discount Taken GL Account field and the Discount Offered GL Account field.

If you will be using tax discounts, select the Using Tax Discounts check box. Otherwise, leave it cleared.

HQ Payment Terms:

Set up payment term codes that define the various discount terms your vendors offer.

AP Vendors:

Assign a default payment term code to each vendor.

Processing

AP Transaction Entry and AP Unapproved Invoice Entry

When you enter the Invoice Date for a transaction, the system uses the vendor’s default pay terms code to calculate the Discount Date and the Due Date based on the codes set up in the HQ Payment Terms form. You can override the Discount Date or Due Date as needed. On the transaction line, a Discount amount is calculated based on the discount rate (from the vendor’s default pay terms) and the line’s gross amount (less retainage, if any). You can override the discount amount or the discount percentage, and the system recalculates the appropriate value.

If you are using tax discounts, the line's discount amount is subtracted from the gross amount to provide the 'tax basis.’ The tax rate is then applied to the tax basis amount to provide the line's discounted tax amount. The tax amount is added to the gross amount (total), and the line's discount amount subtracted from the resulting value (net payable amount).

AP Payments:

The Post Discounts Offered to GL and Net Amounts to Subledgers and/or Using Tax Discounts options determine whether or not you can change a transaction’s discount amount before payment. Changing a discount can be done in either the AP Payment Control Detail or AP Payment Workfile Detail form.

  • If you did not check either of these options, you can change or cancel the discount as needed.

  • If you did check one or both of these options, the discount cannot be changed. If you do not want a discount amount to be taken, you can either change the original transaction (if the month is still open) or you will have to add a new transaction to pay the discount amount.

Note: When the Post Discounts Offered to GL and Net Amounts to Subledgers or Using Tax Discounts options are in use, any discount set up when the transaction was posted must be taken because the net amount was expensed when the batch was posted. Therefore, at payment time, the system requires the same net amount to be posted to GL in order to balance the expense with the payment.