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166 CHAPTER 5 The Fulfi llment Process

for the discount, then the payment received will be less than the invoiced
amount. Consequently, additional postings are included to refl ect the discount.
Specifi cally, the bank account is debited by the amount of the payment, and
the sales discount account is debited by the amount of the discount. The cus-
1
tomer account and the accounts receivable reconciliation account are credited
by the amount of the invoice, as shown in Figure 5-47. The only differences
between Figure 5-47 and Figure 5-46 are that in Figure 5-47 the bank account is
debited by a smaller amount (amount owed less discount), and the difference
(discount) is debited to the sales discount account. The customer account and
the A/R account are credited by the amount owed.

Figure 5-47: Customer payment with discount

In cases where the payment is not equal to the amount of the invoice
and no discount is applicable, then two scenarios are possible. In one scenario,
the amount of the difference is so small that it is insignifi cant. In such cases, the
company either charges off or writes off the difference using an appropriate
general ledger account, and the invoice is considered paid. A difference is gen-
erally considered small if it falls within the tolerance limits specifi ed in the
system. When the difference falls outside tolerance limits and therefore is con-
sidered signifi cant, the payment is handled either through the partial payment
technique or the residual item technique. Under the partial payment technique,
the payment is posted to the customer account, and the original invoice item
remains open. Under the residual item technique, the original item is closed,
and a new item for the balance is posted to the customer account (and the cor-
responding reconciliation account). Figure 5-48 diagrams all of these scenarios.

1 GBI records all discounts related to sales in one account, the sales discount account. This includes
discounts offered at the time of receiving the sales order as well as discounts related to payment.
It is not uncommon to record these in different accounts, depending on the reporting needs of the
company.

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