Accounting Methods for Discounts and Comps

The practice of discounting and the use of coupons has grown substantially in recent years and operators in virtually every segment of the restaurant industry have expanded the use of discounting in an attempt to increase guest counts and sales by appealing to a more price conscious public.

Many restaurants have expanded their use of discounts and coupons to the point that the dollar amount of these transactions are significant, in many cases running well in excess of 10% of gross sales. As discounted sales make up a larger portion of gross sales, how they are accounted for and reported on a restaurant's income statement can potentially affect how certain cost and margin levels are viewed and evaluated.

There are two primary methods of accounting for restaurant discounts and coupons, the gross sales method and the net sales method. These methods are described and illustrated below.

Gross Sales Method

In the gross sales method, the retail or gross sales price of all discount transactions are included in sales. Because the discounts are included in sales, it is necessary to subtract total discounts through an adjustment on the income statement to arrive at an accurate net income. This is generally done in one of two ways:

• Sales adjustment - One way is to subtract the discounts from sales through the use of a 'discounts and coupons' line near the end of the sales section of the income statement.
• Expense adjustment - Another variation of the gross sales method is to show gross sales with no adjustment for discounts in the sales category. Instead, the discounts are charged to a one or more expense accounts on the income statement. Net profit is the same regardless of which method is used.