9.2 Managing Accounts Payable & Discounts

9.2 Managing Accounts Payable & Discounts

Area D item 2 is manage accounts payable: accounting principles, mathematics, computer skills, how to calculate discounts, and lien laws. If AR is money you are owed, accounts payable (AP) is money you have already used — copper, condensers, crane time, sheet-metal subs — that will leave the checking account on a date the computer must track. Florida HVAC shops die on the spread between vendor terms (often 2/10 net 30) and owner terms (architect's certificate plus retainage, paid in 30–45 days). The QA who preserves cash by skipping every discount is paying a hidden interest rate the exam will make you compute. Builder's Guide to Accounting (2001) is the math book; Chapter 713 is the collection book the vendor uses against your job.

AP on the books

Under accrual accounting, a three-way match (purchase order, receiving report, vendor invoice — section 6.1) creates:

• Debit Job cost / materials / inventory (or a subcontract cost account)
• Credit Accounts payable

Paying the invoice: debit Accounts payable, credit Cash. If you take a purchase discount, the credit to cash is smaller than the AP you debit. The difference is purchase discount (a reduction of cost, or a separate income line) depending on whether the shop uses the gross method or the net method. Builder's Guide walks both. The exam's math item is the dollars saved and the annualized cost of not taking the discount, not a debate about chart-of-accounts cosmetics.

AP is a current liability. Aging AP the other direction — 0–30, 31–60, 61–90, 91+ by vendor and by discount date — is the computer skill. The field that matters is discount-due date, not just net-due date. A $48,000 condenser invoice that is current on a 30-day aging can already have missed a 10-day 2% discount worth $960.

Do not record vendor invoices only when you write the check (cash basis). That hides true job cost until after the estimate is already wrong, and it hides the lien exposure of unpaid suppliers.

Gross method: record AP at the full $48,000; if paid in time, debit AP $48,000, credit cash $47,040, credit purchase discounts $960.

Net method: record AP at $47,040 on day one; if you miss the discount, debit AP $47,040, debit purchase discounts lost $960, credit cash $48,000. Net method highlights the penalty. Either method is acceptable. The cash number is not optional.

How to calculate cash discounts — the 2/10 net 30 family

Credit terms are written discount percent / discount days, net full-amount days.

2/10 net 30 (also 2/10, n/30) means: pay within 10 days of the invoice date and deduct 2%; otherwise the full invoice is due in 30 days. Other patterns on HVAC supply houses: 1/10 net 30, 1/15 net 45, 2/10 net 45, net 30 (no discount), COD, 1% 10th prox (1% if paid by the 10th of the next month). Read the invoice. Do not assume every vendor is 2/10 n/30.

Discount dollars = invoice amount × discount rate

Cash to send = invoice amount × (1 − discount rate)

Worked example 1 — summer changeout stock.

Gulf Breeze buys twelve 3.5-ton condensing units for the June/July Florida changeout season. Vendor invoice dated June 4: $48,000, terms 2/10 net 30, freight prepaid.

• Discount deadline = June 4 + 10 days = June 14
• Net deadline = June 4 + 30 days = July 4
• Discount = 48,000 × 0.02 = $960
• Cash if paid by June 14 = 48,000 − 960 = $47,040

If the bookkeeper pays $48,000 on June 14, the shop just gave back $960. Computer skill: the check run must filter discounts expiring through today, not invoices due this week.

Worked example 2 — partial payment (if the vendor allows 2% on the amount paid within 10 days).

The shop can only spare a $19,600 check on June 14. That check is 98% of $20,000 gross (20,000 × 0.02 = 400; 20,000 − 400 = 19,600). Debit AP $20,000, credit cash $19,600, credit purchase discounts $400. Remaining AP = 48,000 − 20,000 = $28,000, still due July 4 with no remaining discount unless the vendor says otherwise. If instead the stem says the check is $20,000 and 2% applies to the gross portion the check settles, gross applied = 20,000 / 0.98 = $20,408.16. The exam usually uses the cleaner full-invoice case. Apply 2% to the gross amount being paid, then credit AP for that gross.

Worked example 3 — 1/15 net 45 on a $12,500 coil and TXV order.

Discount = 12,500 × 0.01 = $125. Cash with discount = $12,375. You have 15 days to take $125, then 30 more days (45 − 15) of full-price credit.

Paying a discounted invoice after the discount date and still taking 2% is a short-pay. The vendor will debit your account (AP never actually cleared) or refuse the July changeout units. The computer must block discount-taken flags after the discount date.

Annualized cost of skipping the discount

Skipping 2/10 net 30 is not free use of $48,000 for 20 extra days. It is buying 20 days of money for 2% of the invoice.

Approximate annual interest cost of forgoing the discount:

(discount % / (100% − discount %)) × (365 / (net days − discount days))

For 2/10 net 30:

(2 / 98) × (365 / 20) = 0.020408 × 18.25 = 0.3724 = 37.24%

Using a 360-day bank year: (2/98) × (360/20) = 36.73%. Either figure is high thirties. The exam will either ask you to plug the formula or to recognize that 2/10 net 30 is expensive credit.

On the $48,000 invoice, 20 extra days cost $960. Cost per day = 960 / 20 = $48 per day.

Compare that to interest on borrowed money for the same 20 days. If the shop borrowed $47,040 for 20 days at an 8% annual simple rate — an illustration the exam would have to give you, not a published Florida bank covenant and not a CILB rule:

Interest ≈ 47,040 × 0.08 × (20/365) = $206

$206 of bank interest versus $960 of lost discount. Borrowing to take the discount saves $754. Area D tests that comparison. Do not memorize an unpublished banks require X% covenant. The 2026 B&F reference list does not publish your lender's covenants. It does publish the discount formula.

(1/10 net 30) annualized = (1/99) × (365/20) = 0.010101 × 18.25 = 18.43%. Cheaper than 2/10, still richer than ordinary bank interest. Take 2% discounts first when cash is short.

Another plug-in: 2/10 net 45 gives 35 extra days, not 20. Annualized = (2/98) × (365/35) = 0.020408 × 10.429 = 21.3%. Longer free float lowers the annualized penalty; it does not make skipping smart if a cheaper line exists. 1/15 net 45 = (1/99) × (365/30) = 0.010101 × 12.167 = 12.3%.

Computer skills for AP

The AP module needs: vendor master (name, 1099 flag, license number for HVAC subs, W-9), invoice number, job number, gross amount, terms code, discount date, net date, GL/job-cost distribution, and payment status. A weekly discount-opportunity report sorted by discount date is more valuable than a pretty aging that only shows net dates. Recurring overhead (rent, dumpster, software) should be in AP or accrued expenses so job cost is not used as a parking lot. Never pay from a statement without matching invoices — duplicate payments are how a 2% discount turns into a 102% payment.

Three-way match still gates the posting: no match, no AP, no discount clock. Paying a condenser invoice for units still on the vendor's floor, then billing the owner for stored materials, is how overbilling in 9.1 and AP fraud in 9.2 become the same event.

Lien law from the payables side

Unpaid AP is how other people's Chapter 713 rights attach to your customer's property — and then to your relationship with the GC and the CILB.

An HVAC supply house not in privity with the owner must serve an NTO before commencing or within 45 days after commencing to furnish (F.S. 713.06(2)(a)). Copper delivered to a private Fort Myers job on May 1, NTO served May 20: timely. If you then sit on that invoice for 70 days, the supplier can record a Claim of Lien not later than 90 days after final furnishing (713.08(5)). That lien is against the owner's property, but the GC and owner will back-charge, withhold your draw, and demand joint checks. Your AP problem became an AR problem.

Protect the job:

• Pay suppliers from the draw that billed their materials.
• Use joint checks when the GC requires them; they discharge AP and shrink lien risk.
• Collect conditional waivers with the check and unconditional waivers only after the check clears.
• Calendar your vendors' 45- and 90-day clocks the same way you calendar your own AR clocks.
• On public jobs, the unpaid vendor claims against the F.S. 255.05 payment bond, not the schoolhouse. You still get a bond claim on your project file and a QA who looks like he diverted proceeds.

Billing Plaza GC for Supply House A's condensers and using that check to catch up last month's payroll on a different changeout is how a current-ratio problem becomes a misapplication of construction funds problem. Area D will not ask you to practice criminal law; it will ask whether that AP was paid, discounted, or left to lien.

A sheet-metal sub who is a Chapter 489 specialty contractor is a lienor too. Paying the sub late while you have already billed the owner for 80% of duct is the 6.2 draw problem seen from AP: the sub's NTO/lien clock is running, and you are sitting on the sub's money. Joint checks and waivers that match checks actually issued are the control.

Florida HVAC scenario

In April, a Palm Beach Class B shop (systems under 25 tons / 500,000 Btu) stocks 3-ton and 3.5-ton splits for the summer. Invoices: $48,000 on 2/10 n/30 (June 4), $9,800 sheet-metal sub on net 30, $6,200 refrigerant on 1/10 n/30. Cash in checking is $22,000 because May AR from HOA work is at 53 days (section 9.1 aging). The bookkeeper saves cash by paying nobody until net date.

Lost discounts = $960 + $62 = $1,022 for 20 days. Annualized, that is mid-thirties on the big invoice. The copper house, unpaid at day 50, already served a timely NTO on day 12. Final furnishing of that delivery is day 0 of a 90-day Claim of Lien clock. Meanwhile the HOA still has not paid the $46,200. The shop is financing both its customer and its vendor — the definition of a working-capital squeeze.

The exam answer is not wait for the HOA. It is: take the 2/10 discount with a short-term draw on the line if the interest (whatever rate your note states) is less than $960, pay the sub on time to keep lien waivers clean, and call the HOA and calendar the supplier's 90-day clock. Computer: a discount report dated June 14 would have shown $960 in flashing terms. Principles: AP is recorded when the units hit the receiving report, not when someone panics in July.