Gross Method and Net method: What is the difference?

[Former Member]

Hello folks,

Any assistance on the following question would be most appreciated. <b>What is the difference between the Gross Method and Net Method?</b>

I was reading a SAP book entitled 'SAP Account Determination'. In this book, there is a paragraph discussing Incoming Invoices (A/R & A/P Pg. 24).

The paragraph is as follows:<b>"</b><b>If discount terms are offered on an incomng invoice, you can choose to post that invoice using the <u>net method</u> or the <u>gross method</u>, determined by the flag set in the document type configuration. If the incoming invoice for inventory materials is posted using the net method, then the discount amount on the invoice has no impact on the Moving Average Price of inventory materials</b>.<b>"</b>

How does one figure out which method to use for a business? Does the US use net? I am trying to find a really good explaination and maybe an example of what the gross and net method are. Also, where is this configured in the SAP system?

Thanks in advance.

[Former Member · Accepted solution]

Hi Sridevi,

Thanks for your reply. I am not clear on your example.

Your example:

Goods Value - $1000

Discount - $100

<b>In Gross Amount</b>: $1000 + $ 100 = $1100 (are you saying that in the Gross amount, we add the <u>Goods value</u> AND the <u>discount</u> and then deduct the tax from $1100?

<b>In Net Amount</b>: $900 + $100 = $ 1000 (<b>where did the $900 come from? Does the $100 represent the discount?</b>)

Thanks again.

[Former Member · Accepted solution]

The easiest way to look at this is the value that the discount is calculated from.

So if it is Gross then if an invoice is $1000 and discount would be calculated on that.

If you have Net, and the net amount of the invoice was for argument sakes $800 then the discount would be calculated on that.

So if there was a 2% discount the customer or Vendor could take $20 in the gross scenario and only $16 in the net scenario and it works on the net amount which is the amount of the invoice (gross) minus the tax, VAT.

Please award points if this is useful.

[Former Member]

Thanks everyone. I think i get it now.

[Former Member]

Hello United 99,

If I have understood your query correctly, then following would be my reply. I guess you are talking about the scenario where in you are trying to enter a vendor invoice in the system. With reference to this the Indicator: Documentposted net is to be selected if you want to have the system automatically deduct cash discounts from vendor invoices that are posted with this document type.

Such a facility of posting net is not supported for account receivable.

Hope I had been able to help you, please assign points.

Rgds

Manish

[sridevi_p]

Hi,

Take Example:

Goods Value - $1000

Discount - $100

In Gross Amount: $1000 + $ 100 = $1100

In Net Amount: $900 + $100 = $ 1000

This holds true not only in discounts, but also in tax calculations

Hope it is clear

Regards,

Sridevi

<i>Assign points, if useful</i>