Purchase returns and discounts
Objective: Record purchase returns and discounts.
Recommended first: Recording supplier bills
Under a perpetual system, purchases debit Inventory. Returns and early-payment discounts reduce Inventory's cost. Terms 2/10, net 30 mean pay within 10 days for 2% off, otherwise the full amount within 30.
Under a perpetual system, inventory should reflect the net cost of goods on hand. Returns reduce inventory because the goods have left; early-payment discounts reduce cost because the business paid less for the same goods. The full Accounts Payable balance is cleared when a discount is taken, because the supplier accepts the lower amount as full settlement.
Check your work
- Is Accounts Payable cleared in full?
- Did inventory decrease for returns and discounts?
- Is Cash credited for the amount actually paid?
Discount terms reward paying early, so the payment date matters. Count days from the invoice date stated on the bill. If the payment falls outside the discount window, the full amount is due and no discount is recorded, even if the business intended to take it.
Pay a $2,000 merchandise bill within the discount period (2%).
| Account | Debit | Credit |
|---|---|---|
| Accounts Payable | $2,000.00 | |
| Cash | $1,960.00 | |
| Inventory | $40.00 |
Common mistakes
✗ Recording the discount as revenue.
✓ Under this method it reduces inventory cost.
Guided practice
Use hints freely here.
Item 1 of 1
Buy inventory on credit (perpetual)
On Mar 3, 2026, Little Fern Online Shop buys $1,750.00 of merchandise for resale on account, terms net 30. It uses a perpetual inventory system.
Independent practice
Try these without hints. Completing the lesson needs at least one independent item solved without revealing the answer.
Item 1 of 4
Return goods to a supplier
On Mar 8, 2026, Little Fern Online Shop returns $155.00 of damaged merchandise bought on account and receives a supplier credit memo (perpetual system).
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Key terms
- Perpetual inventory
- Updating inventory with every purchase and sale.
References and provenance
- OpenStax, Principles of Accounting, Volume 1: Financial Accounting (accessed 2026-10-29)
Original lesson written for Bookkeeping Exercises (AI-assisted drafting). Calculations are verified by the platform's automated accounting tests. Not yet reviewed by a credentialed accountant. Updated 2026-10-29.