How do I enter an early settlement discount for a purchase?
As an example, let's say you have made a purchase of say £100.00 and let's assume the supplier charges VAT at 20%. The total invoice value from the supplier is £120.00. The invoice states you can have an early settlement discount of £15.00. If you pay the invoice off within the time given, you will be paying £105.00 instead of £120.00.
Entering the purchase is easy, just enter the amount as 100.00 and choose "VAT purchase standard", checking the VAT amount comes to 20.00 and the total including VAT comes to 120.00. You should see something similar to the following:
We are about to make the payment to the supplier and handle the early payment discount. You might want to keep track of all these discount amounts, so let's create a new account. You could think of this as additional income, but it's more appropriate to classify the account as an Indirect Expense. This will lead to the account having a negative amount because it is recording a negative expense amount. But it is better than classifying it as income because this would lead to over-reporting your turnover whereas using an expense account would simply reduce the total expenses in your business. Let's call the account "Early Settlement (suppliers)".
When entering the payment for this purchase, right-click the purchase and choose Payments > Make Payment.
The bank account is already set as Account 2 and the amount is assumed to be the full amount, in other words 120.00.
We're paying 105.00 so you can change this amount to match. Next, add a split to the payment and choose "Early Settlement (suppliers)" for the account in Split 2. This is where we record the 15.00 discount. The amount in Split 2 should be the Incl-VAT amount unless you've changed it in the app preferences. So set this to 15.00. Lastly, set the VAT rate to match the previous purchase as "VAT purchase standard".
You may not be using VAT, in which case just ignore the VAT amounts. The example includes VAT to show how the purchase VAT is affected by the discount.
If you don't edit the amount in Split 1, Easy Books will assume the amount is to be reduced by the total amount in Split 2 if this links to an expense account. So in this example, it isn't actually necessary to set the amount to 105.00, setting the amount in Split 2 is enough.
At the end of these transactions, the balance on the accounts is
Bank account = -105.00 (we didn't start with anything in the account)
Cost of sales = 100.00
Early payments (suppliers) = -12.50
VAT purchase standard = 17.50