Penalties from Vendors, such as late delivery fines or contractual breach charges, represent expenses for your business. Accurate recording ensures proper expense recognition. Before processing, check if the penalty are taxable under local regulations.

Option 1. Non-Taxable Case #

Use a direct Journal Entry. This tracks the penalty without VAT or any other tax implications.

• Debit: Other (Penalty) Expense
• Credit: Accounts Payable

Option 2. Taxable Case #

1. Create a “Penalty Service” item: type = Service, expense account linked to Other (or Penalty) Expense, and assign applicable Tax Group to this Item.
2. Create a Bill: Select Vendor, add Penalty Service item.
3. Bill creates the following entries:
   • Debit: Expense Account (selected in the Item Card)
   • Debit: VAT and / or other applicable taxes
   • Credit: Accounts Payable (set in the Bill header)

To record Penalties from Customers please refer to this article.