Most retail outlets offer sales at some time during the year, whether it’s to bring additional traffic into the store or to get rid of leftover merchandise when the prime season is over, such as after-Christmas sales. To know how well your business is doing during prime retail time, you need to carefully track items for which you offered a discount.

When you run a sale, you should record the sale at full retail price and then record the sales discount separately. You can easily do this recording by using a standard cash register receipt. Assume Lisa’s Candle Shop is offering a 20 percent discount on Christmas merchandise in January. During this sale the cash register receipts have an extra line of information.

Lisa’s Candle Shop, 1-15-2010

If the money was deposited in the bank, the journal entry for this transaction would look like the following.

When Lisa’s Candle Shop prepares its P&L statement for January, the Sales of Goods line shows the full retail value of $52.00, but the Sales Discounts line reduces this amount by $10.40. The Cash in Checking line reflects the amount that was actually received. Sales Tax Collected, a liability account, tracks the sales tax that has to be paid to government entities. Note that the entry is balanced with $54.08 for both debits and credits.