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Discounts on products

We are trying to find the correct answer for recognize revenues/sales correctly.

We have an item priced at $25.00 and we sell it for $20.00 due to the customer is a member of our club. Where would I enter the $5.00 reduction in sale price? Because the next person who purchased the item paid the retail price of $25.00.

Do we put the $5.00 in a discount in sales/revenue or operating expense?


The 5 is a form of variable consideration and so is debited to (deducted from) revenue.

It cannot be recognized as an expense (or loss) regardless of whether other customers pay 25, or same customer paid 25 in a past transaction(s).


ASC 606-10-32-1: When (or as) a performance obligation is satisfied, an entity shall recognize as revenue the amount of the transaction price (which excludes estimates of variable consideration that are constrained in accordance with paragraphs 606-10-32-11 through 32-13) that is allocated to that performance obligation.

ASC 606-10-32-6: An amount of consideration can vary because of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties, or other similar items. The promised consideration also can vary if an entity’s entitlement to the consideration is contingent on the occurrence or nonoccurrence of a future event. For example, an amount of consideration would be variable if either a product was sold with a right of return or a fixed amount is promised as a performance bonus on achievement of a specified milestone.

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