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How to account for supplier prepayment?

fabianoafabianoa Member Posts: 5

One of my suppliers sometimes runs a "sale" on credit by granting a 10% bonus on the purchase of prepaid credits. So if 1000 is purchased my account with them will show 1100.

Any thoughts on the best way to account for this? I understand how to account for prepaid expenses in general but the extra 10% is throwing me off. The only way I can think of is to treat it as income. Is there a better way to account for this?

Thanks for the help!

in Accounting Technical Support

Comments

  • ConnorMConnorM Member Posts: 1,229 ✭✭✭

    Hey @fabianoa! Thanks for reaching out, that's definitely a tricky one. I think what you might want to do is account for that as income, for sure. The thing here is that it's not really something that you'd account for, right? Are you running your balances for that supplier within Wave? This might be something that they'd need to track and you would just need to enjoy the benefits of - though I'd love any other context around this if you think there's some that could elucidate me further!

  • fabianoafabianoa Member Posts: 5

    @ConnorM thanks for the response! I am a wedding photographer and the supplier is a bookmaker that binds my albums.

    After thinking about this more, I agree with you that I don't really need to account for the bonus. However, what I will end up doing so that my data matches the invoice from the supplier is crediting the expense account. This will allow the COGS account to be accurate for taxes and also allow me to see the true cost of my goods.

    So the transactions will look like this

    on initial purchase
    Credit Bank 1000
    Debit Prepayments 1000

    and on use
    Credit prepayments 1000
    Credit COGS (supplier bonus) 100
    Debit COGS (Album cost) 1100

    Thanks for your help!

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