What Is a Purchase Discount?

Purchase discount refers to the cash discount given by the supplier when purchasing inventory. There are three methods to deal with the purchase discount: total price method, net price method and reserve replacement method. The same inventory and the same price, different processing methods will lead to different inventory costs. There are specific treatment methods such as total price method, net price method and allowance method.

Purchase discount

Right!

Purchase discount refers to purchase

1. Total price method: When purchasing inventory, the "inventory" or "purchase" account is priced at the total price, and the accounting only reflects the discounts received (reported by "purchase discount").

2. Net price method: When purchasing inventory, the "inventory" or "purchasing" account is valued at the net price after deducting the discount. Accounting only reflects the discounts that are not enjoyed (reported by "lost purchase discounts"). The discount is taken as the period cost.

3. Allowance method: When purchasing inventory, the "inventory" or "purchasing" account is valued at the net price after deducting the discount, the "accounts payable" are valued at the total amount, and the difference is included in the allowance account "allowable purchase discount ".

Assessing the lost purchase discount does not increase the economic benefits that the company obtains from the inventory. Therefore, under the net price method and the reserve method, the lost deduction does not constitute the cost of the inventory, but is treated as a financial expense. In this sense, the net price method and allowance method correctly reflect the cost of inventory-the sales price minus all available discounts. In line with this, the total price method should reduce the enjoyment of purchase discounts from the cost of inventory, It includes lost purchase discounts.

The net price method and allowance method separately reflect purchase discounts, which can prompt the efficiency of purchases by enterprises and provide important information for management authorities.

The disadvantage of the net price method is that the accounts payable does not fully reflect the highest value of the liability; fortunately, the adjustment of the credit card has correct the liability in the balance sheet.

Although the net price method is better than the total price method, the total price method is widely used because of its simple operation.

ask:

In cooperation with a certain manufacturer, a company agrees that the manufacturer will give a discount to our company every month at a certain rate of the purchase amount (including tax) of the month. This discount currently has two operation methods: 1. The manufacturer discounts directly on the invoice;

2. No discount on invoices, direct cash payment will be issued by our company for retail invoices, and our company will do income processing.

The above two methods do not affect our company's gross profit margin, and the gross profit from sales is within the industry standard. Does the first method belong to the amortization under the tax law? Does the second method need to convert the discount amount when calculating taxes?

answer:

These two types of discount business are essentially the same. They are both manufacturers' benefits to businesses, but they differ in tax treatment.

In the first method, the manufacturer directly states the discount amount on the invoice, which is a sales discount. According to the tax law, if the sales amount and discount amount are separately indicated on the same invoice, the seller can calculate the VAT based on the discounted balance as the sales amount; if the discount amount is invoiced separately, regardless of how it is financially treated, The discount amount shall not be deducted from the sales amount, and the purchaser shall calculate the input tax amount based on the balance after the discount.

The second method belongs to the rebate behavior stipulated by the State Administration of Taxation's "Notice on Levying Value-added Tax for Flat Sales" (Guo Shui Fa [1997] No. 167) document. The "Notice" stipulates that, from January 1, 1997, all general taxpayers of value-added tax, regardless of whether or not there is a flat-off behavior, shall receive all forms of refunded funds obtained from the seller as a result of purchasing the goods. Calculate the input tax that should be deducted from the value-added tax rate and deduct it from the input tax in the period in which it obtains the refunded funds. The input tax deductible in the current period is equal to the refunded capital obtained in the current period multiplied by the value-added tax rate applicable to the purchased goods. The refunded capital obtained in the current period should be converted into non-tax income and the input tax deductible should not be used. The returned funds are multiplied directly by the applicable tax rate.