How to document and reflect discounts and sales in accounting

The most common tool for increasing sales is discounts. Read this article to find out how to document discounts in your store, how to show them in your accounting, and whether you should offer them to customers at all.

How to document discounts and sales?

The possibility of granting discounts to customers is provided for in Article 632 of the Civil Code and Article 15 of the Law on Consumer Protection. In retail, contracts are most often concluded orally, and the terms and conditions are indicated on the price tag.

You can use the term "Discount" if certain conditions are met:

• a discount is granted on goods or services sold by an entrepreneur;
• there is a time limit for the discount;
• the discounted price must be lower than the regular price.

You can use the term "Sale" if certain conditions are met:

• if there is a sale of all goods in a certain place (store) or a discount is provided for a certain group of goods;
• there are restrictions on the time of the sale;
• the price of goods during the sale must be lower than the regular price.

If you decide to draw additional attention to your discounts and sales, then you must take into account the provisions of Article 8, paragraph 5 of the Law on Advertising. This law obliges you to provide full information about the place, start and end date of discounts and sales, the amount of the discount, and the price: old and new.
The process of documenting discounts or sales is not regulated by law. However, we recommend that in order to avoid any claims from buyers or inspection authorities, you develop an "Order on discounts (sales)". This document should specify:

• the purpose of the event,
• the range of goods covered by the discounts,
• types of discounts,
• the amount of discounts,
• terms of discounts,
• hour of holding,
• indicate responsible persons, etc.

Information about sales or discounts should be posted in a visible and accessible place for customers.

Upon completion of the sale or expiration of the discount period, the responsible person must draw up a Sale Act (report of the responsible person). This document is drawn up in any form and contains information about the goods sold (which goods were sold at what price).

What types of discounts are there?

Discounts offered in the store can be divided into several types:

• Promotional discounts are the most common type of discounts, and information about them is most often posted in a storefront, on social media, in public transportation, etc.
• Discounts are discounts that are provided to customers with store discount cards. Most often, to receive a discount card, you need to make a purchase for a certain amount, sometimes it is issued to the customer at the first visit to the store. These discounts can be fixed or cumulative.
• Progressive discounts are discounts that are tied to the quantity of goods purchased or the purchase amount.
• Seasonal discounts are discounts that are tied to a specific time of year. They are most often provided at the end of the season.
• Holiday discounts are discounts that are tied to a specific holiday, such as New Year, Christmas, March 8, etc.
• Discounts on the balance of the goods. These discounts are available for the last pair of shoes, the last size, or for products from previous collections.

Accounting and tax accounting for discounts and sales

Regardless of what type of discount you decide to use to increase sales, they are all provided at the time of purchase, not after.

At the end of the month (after the sale or discount), you need to calculate the trade margin. If it is less than the amount of the discount, it will be necessary to additionally accrue VAT tax liabilities (for VAT payers), and accordingly, this amount will be included in the accounting records.

If goods are sold at a discount at a price lower than the purchase price, additional VAT must be charged and two tax invoices must be registered:

• the first tax invoice is for the actual price of the goods supplied;
• the second tax invoice is for the difference.

The company's income will include the cost of the goods including the discount. The amount of the discount does not need to be reflected separately.

Please note! When conducting sales and offering discounts, you should not specify a list of persons who may qualify for a discount, as from the point of view of the law, such conditions are considered an additional benefit for the buyer and should be subject to personal income tax (18%).