Small Business Bookkeeping & Accounting

Small Business
Bookkeeping & Accounting

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Cash Discounts - Purchases

In our sample chart of accounts we have set up account number 7100 for cash discounts on purchases. If you are paying a material order and get to deduct 2% for paying early, by all means, try to do so. This is where that amount goes: you debit the entire expense to the materials account as if you didn't take the discount, but credit the actual amount of your check to cash, and credit the remainder to the cash discounts account. This helps you see the value of paying early, and if you're in a position to do this fairly regularly, it looks great to your banker - so take the time to book it correctly.