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Visionary 360 Blog

How to properly record discounts & credits

Occasionally you are going to have to give a client a discount or credit on services products.

 

A “discount” refers to a reduction in price and is typically reflected on the original invoice while a “credit” is an amount returned to a client after the fact. Credits are typically put on separate transactions and applied against the original invoice.

 

Regardless of the type of reduction – discount or credit – it needs to be recorded in your accounting software and reduce income for the period containing the discount or credit.

 

There are two general ways to record this type of transaction. Each way is valid and which way you chose will depend on how you want to view and report on the discounts/creditduring given period.

 

Scenario:  You have invoiced a client $500 for service and $85.00 for a replacement part. The client disputes the invoice and you agree to credit them ($150) for service and the full amount of the replacement part, ($85).


1.  Record discounts/credit
s as negative income in a separate income account 


Using this method, a separate 
group of accounts is created in your accounting system chart of accounts (CoA) to specifically record discounts.

Below is an example of what this may look like in generalized CoA.

 

Before Discount/CreditAfter Discount/Credit 

 

 

This method allows you to report on discounts/credits separately from regular income and separately for each type of discount/credit (service vs. hardware vs. software, etc.) 

 

This method requires you create new products, categoriessubcategories and set up new mappings in the GL setup table to drive negative income into the separate accounts in your CoA. 

 

  1. 2.  Record discounts/credits as negative income in the original income account 


Using this method, 
the same accounts used for the full or original amount billed to the client is also used to book the discount or credit. Below is an example of what this may look like in generalized CoA. 

 

Before Discount/CreditAfter Discount/Credit 

 

Using this method does not lend itself to easy reporting of either types or totals of discounts/credits given in a period.

 

This method does not require new products or GL mappings in ConnectWise. Visionary 360 recommends using the same products for your discount/credit as were used for the full billing amount. Once the product has been added to an opportunity, sales order, ticket, or invoice the price, cost and customer description should be edited to reflect the reason for the reduction.

 

There is no right or wrong way to do this and the net result will be the same, a decrease in overall income. How you choose to record these reductions is going to depend on what works best for your company and how you want to see these items reflected in your books.

 

Visionary 360 offers not only ConnectWise consulting but also bookkeeping services. If you have any questions about how to set up discount products or consulting advice on which method may be the best fit for your company, please contact our office.

 

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