Adjust rounding differences on purchase invoices

Rounding differences can occur when a supplier uses different methods to calculate discounts or taxes on its sales invoices than Manager uses when you record those supplier sales invoices as purchase invoices.

Note
Rounding discussed in this Guide is the rounding necessary when multiple line items are included on a purchase invoice, not the rounding of the final balance that can be elected for a sales invoice when exclusion of fractional currency units is desired.

When a supplier sends you a sales invoice, you typically enter the invoice into Manager as a purchase invoice, exactly the same way it appears on the supplier’s invoice.

Example
Derek purchases 2 different items for 100 each. The transaction would normally be recorded as follows, and everything is straightforward:

The problem

A problem can arise if you are charged tax or when a discount is applied. Your supplier might use either of two methods for calculating taxes and discounts:

  1. Calculate tax and discount on each line item individually, round the amounts, then total them.
  2. Total line item amounts, then apply taxes and discounts.

Most automated accounting systems (including Manager) use the first method, because individual line items are often posted to different accounts and it is necessary that rounding be applied to each line item separately to do that. The second method is typically used when invoices are prepared manually, because fewer calculations are needed when taxes and discounts are calculated on the total invoice amount rather than each line item. If your supplier uses the second method, the calculated total in Manager may be different from the total on the supplier’s invoice.

Example
Derek buys two different items from his supplier for $11.55 and $24.59 and receives a 3% discount. No tax is assessed.

Derek creates a purchase invoice in Manager (using the first method), so the discount is applied to individual amounts, the line figures are rounded, then the two discounted prices are totaled. $11.55 is discounted to $11.2035 and rounded to $11.20. $24.59 is discounted to $23.8523 and rounded to $23.85. The total using the first method is $35.05, shown on his purchase invoice as below:



But Derek’s supplier used the second method. Both prices were added before any discount, that is:

$11.55 + $24.59 = $36.14

Then the 3% discount was applied and the result rounded:

$36.14 x 0.97 = $35.0558 ~= $35.06

So there is a small difference between Manager and Derek’s supplier. Derek is tempted to ignore it. But if he wants his accounting for Accounts payable and Tax payable (if tax codes are used) to be correct, he must resolve the difference.

Note
The exampled above used discounts to illustrate the problem. Similar discrepancies can occur when tax codes are used.

The solution

If a rounding discrepancy like this occurs, do not enter a percentage discount on your purchase invoice. Instead, either:

  • Calculate discounted unit prices manually and enter those in the Unit price fields. This gives you complete freedom to adjust the discounted, rounded amounts manually so they add up to the total amount charged on the sales invoice received from the supplier. Or,
  • Enter exact discount amounts for one or more line items.

The selection of which line item price(s) to adjust is arbitrary and will generally have negligible impact on average unit cost of any inventory items involved. Regardless, the difference must be taken up somewhere so your purchase invoice total matches the supplier’s sales invoice.

Example
If Derek manually calculates discounted unit prices. He rounds and enters them in his purchase invoice as $11.20 and $23.85. But of course, he notices his total is $0.01 low compared to the supplier’s invoice. So he adds one cent to the first unit price:



Derek could also have entered exact discount amounts, keeping original unit prices the same, with an identical ultimate result:

If a discrepancy occurs due to tax calculations, enter into the Unit price field the tax-inclusive price and check the box on the purchase invoice form to make the amounts tax-inclusive:

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