Allocation of Coupons and Discounts on the P&L
Discounts and coupons are typically accounted for in the “Revenue” section of the Profit and Loss (P&L) statement. The P&L statement, also known as the income statement, summarizes a company’s revenues, expenses, and profits (or losses) over a specific period of time.
Discounts: When a business provides discounts to its customers, it reduces the amount of revenue earned from the sales. The discounted amount is recorded as a deduction from the total sales revenue. The journal entry to record the sale with a discount might look like this:
Debit: Accounts Receivable or Cash (depending on the payment method) – Amount after the discount Credit: Sales Revenue – Total amount of the sale Credit: Sales Discounts or Discounts Given (an expense account) – Amount of the discount.
On the P&L statement, the total amount of Sales Discounts or Discounts Given will be included in the “Revenue” section, effectively reducing the gross revenue to the net revenue after discounts.
Coupons: Coupons are like discounts in that they reduce the actual selling price of a product or service. The difference is that discounts are typically given at the time of sale, whereas coupons are usually redeemed later.
When customers redeem coupons, the value of the coupon is treated as a reduction in revenue, similar to discounts. The journal entry to record the sale with a coupon redemption might look like this:
Debit: Accounts Receivable or Cash (depending on the payment method) – Amount after the coupon redemption Credit: Sales Revenue – Total amount of the sale Credit: Coupons Redeemed (an expense account) – Amount of the coupon redeemed.
On the P&L statement, the total amount of Coupons Redeemed will be included in the “Revenue” section, effectively reducing the gross revenue to the net revenue after coupon redemptions.
Including discounts and coupons in the “Revenue” section of the P&L helps provide a clear picture of the company’s actual sales and the impact these discounts have on the overall revenue generation. It’s important for businesses to carefully track and analyze these figures to understand the effectiveness of their marketing strategies and their impact on profitability.
