Discounts to customers are done for various reasons – to get more customers, to maintain good relationships or to be more competitive compared to suppliers. one thing with discounts is to keep in mind that you should never make losses with those sales – your profit margins should always be bigger than discounts you give. 

Now, when it comes to accounting for those discounts, it’s something you do at the time of a transaction. Before that any discounts agreed are purely contractual and no liabilities as such (and relating expenses) do arise.

A situation would be as follows – you sell something worth of 1,500 euros with a discount of 5% that is agreed in the contract as something you do for this customer in general and not on conditions. The cost of this “something” is 1,000. Your accounting entry is the following:

Db Account receivable 1,500 less discount of 5%, 1,425 (1,500 x 95% = 1,452)

Db Cost of goods sold 1,000

Cr Sales revenue 1,425

Cr Inventories 1,000

It’s clearly visible that you still made a profit with this sale, and gave a discount to your customer at the same time. It’s important to maintain profits with giving discounts, I cannot stress this enough, so make sure that you do simple calculations when agreeing on initial discounts. Obviously, if your discounts are given with the aim to get rid of the goods and to free up storage space, it’s another matter.