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Accounting for Vendor Discounts

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INQUIRY: I received a vendor discount when I paid the invoice early on a FFP (Firm Fixed Price) contract and I do not know how to enter that into my accounting system under DCAA regulations. 

RESPONSE: FAR states the contractor is responsible for having a system in place for seeking and taking advantage of cash discounts, trade discounts, quantity discounts, rebates, and freight allowances.  FAR 31.205-26 (b), Material Costs states:

(b)   The contractor shall-

(1)   Adjust the costs of material for income and other credits, including available trade discounts, refunds, rebates, allowances, and cash discounts, and credits for scrap, salvage, and material returned to vendors; and
(2)   Credit such income and other credits either directly to the cost of the material or allocate such income and other credits as a credit to indirect costs.

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