Question

What is the proper accounting for volume discounts on sales of products?

Answer 1

Volume discounts on sales of products decrease the total revenue to be recognized on the sales. No accounting entry is prepared for volume discount. Only the total sales revenue on the particular sales is recognized at the reduced amount.

For example, assume that a company sold products with total sales price of $10,000. However, it allowed a volume discount of $200 to the purchaser. In this case, no entry will be prepared for the volume discount. Instead, the sales revenue will from this sales will be recorded at $9,800.

So the journal entry to record this sales with volume discount would be as follows:

DR. Cash                  $9,800

CR. Sales revenue                     $9,800