Booking Discounts Allowed and Discounts Received Separately in ERPNext
By default, ERPNext records only the final invoice amount after applying discounts. While this simplifies accounting, many businesses prefer to record discounts separately for better financial reporting and analysis.
ERPNext allows you to account for discounts separately by creating dedicated Discount Allowed and Discount Received ledger accounts and using them in the Taxes and Charges section of Sales and Purchase Invoices.
1. Understanding Discount Accounting
There are two common types of business discounts:
- Discount Allowed – A discount you offer to your customer. This is treated as an Expense.
- Discount Received – A discount your supplier offers to you. This is treated as an Income.
Recording discounts separately provides better visibility into pricing strategies, profitability, and financial reporting.
2. Create Discount Accounts
Before recording discounts separately, create dedicated ledger accounts.
Navigate to:
Accounting > Chart of Accounts
Create the following accounts:
- Discount Allowed (Expense Account)
- Discount Received (Income Account)
These accounts will store the discount values separately instead of reducing only the invoice total.
3. Recording Discount Allowed (Sales Invoice)
To record a discount given to a customer:
- Create a new Sales Invoice.
- Add the required Items.
- Scroll to the Sales Taxes and Charges table.
- Select the Discount Allowed account.
- Enter the discount as a negative percentage or amount.
For example:
| Invoice Value | Discount | Final Invoice Total |
|---|---|---|
| ₹350 | 10% (₹35) | ₹315 |
In this example:
- The customer pays ₹315.
- ₹35 is posted separately to the Discount Allowed expense account.
4. Recording Discount Received (Purchase Invoice)
The same approach can be used for supplier discounts.
While creating a Purchase Invoice:
- Add the purchased Items.
- Open the Purchase Taxes and Charges table.
- Select the Discount Received account.
- Enter the discount as a negative value.
The discount amount will be posted to the Discount Received income account.
5. Complete the Payment
After submitting the invoice:
- Create a Payment Entry.
- Pay the final invoice amount after discount.
- Submit the Payment Entry.
Since the discount has already been accounted for during invoicing, no additional adjustment is required while making the payment.
6. Example Accounting Impact
Suppose a Sales Invoice has:
| Description | Amount |
|---|---|
| Original Invoice Value | ₹350 |
| Discount Allowed (10%) | ₹35 |
| Amount Receivable | ₹315 |
ERPNext records:
- Sales Revenue based on the invoice.
- ₹35 separately under the Discount Allowed expense account.
- Customer payment of ₹315.
7. Benefits of Separate Discount Accounting
- Tracks customer and supplier discounts independently.
- Provides better profitability analysis.
- Improves financial reporting accuracy.
- Allows easy reporting on total discounts granted and received.
- Works seamlessly with standard Sales and Purchase Invoice workflows.
