Many schools have financial aid packages where the institution doesn't distribute funds, but rather gives the student a discount on tuition or fees (sometimes these are called Unrestricted Institutional Scholarships). Since they do not result in any new money in your checking account (that is, no new assets), such discounts are best considered as expenses.
The best way to handle tuition discounts is as follows:
- Create a liability account and award type for the discount (pay special attention to the Affects Need and IRS 1098-T fields). You can also create an asset account and associate it with the award to remove the need to run a journal entry mentioned in Step 6.
- Create an expense account associated with the discount.
- Go through whatever process you require for the student to accept the award (application, etc.).
- Schedule any appropriate disbursement(s).
- Run a batch a batch for the discount
- If you didn't add an asset account to the award in Step 1, you'll want to record a journal entry. When recording the journal entry, credit the liability account (as you would for any award), but then debit the discount's expense account.
- When the aid is posted to the student's account (and applied to invoices), it will reduce your A/R and liability, and the net effect on your entire Chart of Accounts will be reported as an expense.