purchase discounts

If we buy goods and receive them into stock from a manufacturer, and our terms with the manufacturer are 2% 10, net 30… will the 2% discount be reflected in my FIFO layer of inventory for that item (on the occasions we pay in time to take the discount)? While we usually pay in time to take the discount, we do not take it 100% of the time.


What you are describing is a payment discount and is not reflected in the inventory value. The payment discount is treated as current income in the period in which it was realized.

Say you purchase $100 worth of inventory with payment terms of “2% 10, net 30”

Receive & Invoice

Debit Inventory $100

Credit Accounts Payable $100

Pay invoice and take discount

Debit Accounts Payable $100

Credit Cash $98

Credit Discounts Taken $2

Your inventory will be valued at $100.

This is exactly how I was hoping the system would work. I had been told that the discount would hit my FIFO layer in inventory after the invoice was paid, and found that hard to believe.