Finance

For bookkeeping, are discounts considered income or expenses?

Guest Writer
Head of Financial Partnerships, Xero Americas
min read
Opinions expressed by Entrepreneur contributors are their own.
Firstly, nice job on offering discount incentives to encourage more customers to use your service. Often times, companies lose sight of the long-term benefits of offering discounted goods or services to new customers.

A company may experience a short-term negative impact to gross margins but if they can retain the new customers over the long-term, generally this cost will be recovered in more sales.

As for your bookkeeping question, I believe you are referring to "sales discounts," which are not recorded as expenses. Rather, sales discounts are contra accounts to revenue or a reduction of gross revenue to arrive at net sales. In simpler terms, it is really a price reduction as opposed to an added cost to running your business.

Also, it is best to categorize your discounts as specific as possible for tracking purposes. For instance, if you have more than one type of discount, you should add a discount item and then add sub-items for each type of discount such as "Labor Day Discount."

Good luck with your promotional campaigns going forward.

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