Inventory and sales Updated November 2026

Purchase discounts

Terms such as 2/10, n/30 mean a 2% discount if paid within 10 days, otherwise the full amount in 30 days. Under the gross method, paying within the discount period debits Accounts Payable for the full invoice, credits Cash for the amount paid and credits Inventory (perpetual) or Purchase Discounts (periodic) for the discount.

Syntax

Dr Accounts Payable (invoice) / Cr Cash (invoice x 98%), Cr Inventory (invoice x 2%)

Part	What it is
`2/10, n/30`	2% discount if paid within 10 days; net (full) amount due within 30 days.
`Gross method`	Record the purchase at the full invoice price and recognize the discount only when taken.
`Net method`	Record the purchase net of the discount; a missed discount is debited to Purchase Discounts Lost.
`Purchase Discounts`	Contra-purchases account used under the periodic system.

Examples

Purchase: Dr Inventory 4,000 / Cr Accounts Payable 4,000; Payment on day 8: Dr Accounts Payable 4,000 / Cr Cash 3,920, Cr Inventory 80

Result: Inventory ends at 3,920, the price actually paid

Gross method, perpetual system, 2% of 4,000 = 80 discount taken.

Payment on day 25: Dr Accounts Payable 4,000 / Cr Cash 4,000

Result: No discount; inventory stays at 4,000

Paid after the 10-day window, so the full invoice is due.

Net method: Dr Inventory 3,920 / Cr Accounts Payable 3,920; paid late: Dr Accounts Payable 3,920, Dr Purchase Discounts Lost 80 / Cr Cash 4,000

Result: Missed discount shown as an 80 expense

The net method records the purchase at 3,920 from the start.

Common mistakes

Computing the discount on the amount including freight: cash discounts apply to the merchandise price only, not to freight charges.
Taking the discount on a partial payment of the full invoice: the discount applies only to the portion of the invoice actually paid within the period.
Debiting Purchase Discounts: it is a credit (contra-purchases) account; the debit side of the payment entry is Accounts Payable.

Practice Purchase discounts

These drills check your answer on live data, free, no account needed.

Purchase discount takenBrightwater Home Goods bought $6,000 of merchandise on account, terms 2/10, n/30, and recorded it at the gross amount. Two days later it returned $500 of the goods and recorded the return. It now pays the remaining balance within the discount period. Brightwater uses a perpetual inventory system.
Sales discount takenPioneer Supply sold $5,000 of merchandise on account, terms 2/10, n/30, and recorded the sale at the gross amount. The customer pays within the discount period. Record the collection.

Questions

What does 2/10, n/30 mean?

A 2% discount is available if the invoice is paid within 10 days; otherwise the full amount is due in 30 days.

Is a purchase discount recorded as revenue?

No. Under a perpetual system it reduces the cost of inventory; under a periodic system it reduces net purchases. It is never income.

Should I always take the discount?

Usually yes. Missing a 2% discount to hold cash 20 extra days is equivalent to borrowing at roughly 36% per year.

Paying accounts payableHow to record paying a supplier: debit Accounts Payable, credit Cash. Covers partial payments, paying within a discount period and the expense mistake.
Inventory purchase (perpetual)How to record merchandise bought for resale under a perpetual system: Dr Inventory, Cr Accounts Payable, plus freight-in, purchase returns and periodic.
Collecting a receivableHow to record a customer paying an invoice: debit Cash, credit Accounts Receivable. Partial payments, early-payment discounts and why there is no revenue.
Cost of goods soldHow to record cost of goods sold: Dr Cost of Goods Sold, Cr Inventory at each sale under a perpetual system, or compute it at year end under periodic.