Applying Discounts and Credits to Payments

Most companies like to use their discounts and credits as soon as possible. By far the easiest way to deal with discounts and credits you receive from vendors is to let QuickBooks automatically handle them. Here’s how you delegate applying early payment discounts and available credits to QuickBooks:

 1. Choose Edit➝Preferences➝Bills, and then click the Company Preferences tab.

The settings you choose here apply to every person who logs into your company file. Because the settings appear on the Company Preferences tab, you have to be a QuickBooks administrator to change them.   

   Paying Your Bills

2. To make QuickBooks apply available credits automatically, turn on the “Automatically use credits” checkbox. With this checkbox turned on, QuickBooks automatically deducts vendor credits from the corresponding vendor’s bills. If you’d rather choose when to apply credits, leave this checkbox turned off.

3. Turn on the “Automatically use discounts” checkbox and, in the Default Discount Account box, choose the account you use to track vendor discounts. If you don’t have an account set up for vendor discounts yet, choose <Add New> at the top of the Default Discount Account drop-down list, and then create a new account called something like Vendor Discounts.

Note: Whether you create an income account or expense account for vendor discounts is neither an accounting rule nor QuickBooks requirement, but a matter of how you view vendor discounts. If you think of them as expenses you’ve saved by paying early, create an expense account. If you view them as money you’ve made, create an income account instead. Either way, vendor discounts are different from discounts you extend to your customers. So, in the Default Discount Account box, choose an account specifically for vendor discounts, not your customer discount account.

As you’d expect, turning on these checkboxes tells QuickBooks to apply early payment discounts and available credits to bills without further instructions from you. The program uses your payment terms to figure out the discount you’ve earned, and it adds all available credits to their corresponding bills. Whether these checkboxes are on or off, you can still control the discounts and credits QuickBooks applies to your bills, as you’ll learn on the following pages. For example, you might want to delay a large credit until the following year to increase your expenses in the current year, which decreases this year’s taxable income.

Applying discounts manually

If you want to apply discounts manually or change the discount that QuickBooks added, here’s what you do:

1. Open the Pay Bills window. On the Home page, click the Pay Bills icon, or choose Vendors➝Pay Bills.

2. To select a bill that isn’t already selected for payment, turn on its checkbox in the table. If the checkbox is already turned on, select the bill by clicking anywhere in the bill’s row. In the “Discount & Credit Information for Highlighted Bill” section, Quick- Books shows the discount and credits that are available for the bill. More importantly, the program activates the Set Discount and Set Credits buttons so you can click them to apply discounts and credits, respectively. (If the checkbox is turned off, QuickBooks shows the suggested discount and available credits, but the Set Discount and Set Credits buttons are dimmed.)   

Tip: When you apply discounts manually, you can use the Disc. Date column to identify bills that qualify for early payment. If the date in a Disc. Date cell is in the future, the bill qualifies for an early payment discount.

3. To apply or modify a discount to the selected bill, click Set Discount. QuickBooks opens the “Discount and Credits” dialog box (Figure 9-13). If you’ve turned on multiple currencies, the currency you set for the vendor appears to the left of the Suggested Discount label and in the “Amount of Discount” box.

Figure 9-13:╇ In the “Discount and Credits” dialog box, QuickBooks automatically selects the Discount tab and displays your payment terms, the discount date, and the amount of discount you deserve. If the suggested discount is worth an early separation from your money, click Done to deduct the discount from your bill. Otherwise, click Cancel. If you also want to work on credits, when you’re done modifying the discount, click the Credits tab.

4. In the “Amount of Discount” box, QuickBooks fills in the suggested discount. If you want to apply a different discount, type the new value. Many companies try to save money by taking early payment discounts when they haven’t paid early. Some companies apply discounts regardless of what their payment terms are, and most vendors honor these undeserved discounts in the name of goodwill.

5. In the Discount Account drop-down list, choose the account you use to track your vendor discounts. If you use an income account, discounts appear as positive numbers and increase the balance of the income account. If you use an expense account, discounts appear as negative numbers because they reduce how much you spend on expenses.   Your Bills

Tip: If you want to track discounts on inventory separately, create a Cost of Goods Sold account specifically for inventory discounts. For example, if QuickBooks created account 5000 for Cost of Goods Sold, you can create two subaccounts: 5005 for Cost of Inventory Sold and 5010 for Inventory Discounts. In your financial reports, the two subaccounts show your original cost and the discounts you receive. Account 5000 adds the two subaccounts together to show your net cost of goods sold.

6. If you track classes, choose the class for the discount. Typically, you’ll choose the same class for the discount that you used for the original expense.

7. Click Done. QuickBooks closes the “Discount and Credits” dialog box. Back in the Pay Bills window, the program adds the discount you entered in the bill’s Disc. Used cell and recalculates the value in the Amt. To Pay cell by subtracting the discount from the amount due.

Applying credits manually

When you select a bill in the Pay Bills window, the “Discount & Credit Information for Highlighted Bill” section shows the credits that are available for that bill. If the “Discount and Credits” dialog box is already open because you’ve applied a discount, just click the Credits tab and then continue with step 4. Otherwise, here’s how to apply available credits to a bill or remove credits that QuickBooks applied for you:

1. On the Home page, click the Pay Bills icon, or choose Vendors➝Pay Bills. QuickBooks opens the Pay Bills window.

2. Select a bill by turning on its checkbox in the table. In the “Discount & Credit Information for Highlighted Bill” section, Quick- Books shows the credits available for the vendor, if any. The program also turns on the Set Credits button.

3. To apply a credit to the selected bill, click Set Credits. QuickBooks opens the “Discount and Credits” dialog box, and displays the Credits tab, shown in Figure 9-14. Credits that are already applied to the bill are checked.

4. Turn on the checkmark cell for each credit you want to apply, and then click Done. QuickBooks closes the dialog box and applies the credits.   chapter 9: paying for expenses 227 Paying Your Bills

Figure 9-14:╇ In the table section of the “Discount and Credits” dialog box, click a credit’s checkmark cell to toggle between applying the credit and removing it from the bill. QuickBooks updates the Credits Used value to show the amount of credit applied to the bill. The Amt. To Pay value is the amount you have to pay based on both applied discounts and credits.

Setting the Payment Method and Account After you’ve selected the bills to pay and applied any discounts and credits, you still have to tell QuickBooks how and when you want to pay those bills. At the very bottom of the Pay Bills window, these settings are the last choices you have to make before paying your vendors:

 • Payment Date. QuickBooks fills in the current date automatically. To predate or postdate your payments, choose a different date.

• Payment Method. In this drop-down list, choose how you want to pay the bills. You can select Check, Credit Card, or Online Bank Pmt (which you can use if you subscribe to QuickBooks’ online bill payment service). If you pay bills by check and print your checks from QuickBooks, choose the “To be printed” option, and the program automatically adds the bills you selected to the queue of checks to be printed. You’ll learn about printing these checks later.

                                     

If you write checks by hand, choose the “Assign check number” option. That way, when you click the Pay Selected Bills button (explained in a moment), the program opens the Assign Check Numbers dialog box. To assign check numbers starting with the next unused check number, choose the “Let Quick- Books assign check numbers” option. If you instead want to specify the check numbers for each check you write, choose the “Let me assign the check numbers below” option.   ╉Producing Checks

• Payment Account. If you specified a default account for the Pay Bills window to use, QuickBooks automatically fills in that account. To use a different account, in the Account drop-down list, choose the account you use to pay bills, such as a checking or credit card account.