We all know that some companies offer a purchase discount when the invoice is paid within 15 or 20 days (or any other time, depending on the company)
The discount would appear under the "Payment Terms". An invoice with a payment term that has 2/15 Net 30 means that you can take 2% Off if you pay the invoice within 15 days, and you have to pay the invoice in full (Net amount) if you pay it within 30 days.
If you constantly take purchase discounts, you may actually keep a record of the discounts lost in case the invoice wasn't paid in time and you lost the discount.
The account used for recording lost discounts you can name it "Purchase Discounts Lost"
Example:
Your firm receives an invoice for $10,000 with credit terms 2/10, Net/30.
This means that if you pay it within 10 days, you pay only $9,800 if you pay it within 30 days, you will pay the full amount of $10,000
If you pay the invoice within 10 days, you are making the following entry:
To record the receipt of the invoice WITHOUT keeping track of the discounts taken:
Purchases (Asset Account) $9,800
Accounts Payables (Liability Account) $9,800
To record the receipt of invoice WITH keeping tracking of the discounts taken:
Purchases (Asset) $10,000
Accounts Payables (Liability) $9,800
Purchase Discounts Taken (Revenue Account) $200
Record the payment:
Accounts Payables $9,800
Cash $9,800
If the bill is not paid within the discount period than you are making the following Journal Entry:
Accounts Payables (Liability) $9,800
Purchase Discounts Lost (Revenue Account) $200
Cash $10,000
Both Accounts "Purchase Discounts Taken" and "Purchase Discounts Lost" you can make them sub-accounts of "Purchase Discounts" - a revenue (income) account.
In this case, if we follow the above example, this account will appear as follows (on the Income Statement):
Purchase Discounts
Purchase Discounts Taken $200
Purchase Discounts Lost -$200
Total Purchase Discounts $0
Let's say that at the end of the year you want to see how many discounts you took and how many you lost, you just take a look at the "Purchase Discounts" account:
Purchase Discounts
Purchase Discounts Taken $1,000
Purchase Discounts Lost - $300
Total Purchase Discounts $700
