Accounting for Vendor Discounts
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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