How to Handle Discounts, Coupons, and Promos in E-Commerce Books (the Right Way)

Let’s say, you ran a 20% off flash sale on your bestsellers. Within 48 hours, you sold over 1,200 units! Shopify pinged you with a sales spike, and it felt like a win.

But when your accountant reviews the books a month later, the revenue numbers seem inflated, the discounts aren’t logged correctly, and none of the returns were tied back to the promo. 

And now that’s a red flag for tax season.

Promotions/discounts are powerful marketing tools. They boost conversions, clear deadstock, and drive acquisition.

However, what most e-commerce sellers underestimate is this very fact: what looks good on your Shopify dashboard might be damaging your backend books.

Our team has seen e-commerce founders celebrate a wildly successful sale one day and scramble to clean up accounting chaos the next. And they can tell you why promos without backend discipline are expensive mistakes in disguise.

But don’t worry, we’ll help you understand how to use coupons and promos in the right way.

This guide breaks down how to handle discounts, coupons, and promos the right way. Not just from a marketing lens, but from an accounting and compliance perspective too.

You’ll learn:

• E-commerce discount accounting fundamentals

• What IRS and GAAP expect when you apply promotions

• How to handle different types of promos (BOGO, flash, bundles) without wrecking your margin clarity

• The exact journal entries and GL code strategies to stay compliant

Why Discounts Are Great for Growth, but Tricky for Accounting

Discounts feel like a straightforward marketing tactic. Give customers a price break, increase conversions, move more inventory. Great, right? 

But underneath:

When you look at the backend financial and compliance side, discounts cause a chain reaction. If not tracked properly:

• They inflate revenue (since gross sales are recorded before discounts).

• They distort margins, because the real cost to the business isn’t reflected.

• They confuse tax and compliance filings, especially when different states treat discounted transactions differently.

• They clutter bookkeeping, especially if refunds or bundles are involved.

So, while the front-end result of a discount is growth, the back-end effect, if unmanaged, can lead to messy books, audit risks, and poor financial clarity.

Quick Overview of Common Challenges

Let’s break down some common pitfalls that e-commerce sellers and accounting teams run into when tracking promotions, coupons, and discounts:

“Revenue looks inflated”

Most e-commerce platforms, like Shopify or WooCommerce, record gross revenue by default.

If discounts aren’t posted as contra-revenue entries in your general ledger, your financial reports will reflect total sales before any promotions, thus inflating your top-line numbers and giving a false sense of profitability.

“Tax calculated incorrectly”

E-commerce platforms often sync sales data with tax tools like Avalara or TaxJar, but not all of them pass discount data correctly. This means your tax is sometimes calculated on the pre-discount price, even when legally you owe tax only on the amount the customer paid.

This misalignment leads to overpayment or underpayment of sales tax, which can become a serious issue during audits.

“Refunds after promos confuse your books”

If a customer uses a promo code, returns one item from a bundle, or asks for a partial refund, and your system doesn’t automatically reallocate the original discount proportionally, it throws off your revenue reporting, cost of goods sold (COGS), and even inventory valuation.

This is especially problematic if you’re using platforms like Amazon that consolidate promo and refund reporting in ways that are hard to parse.

All in all, these gaps lead to compliance errors and confusion at tax time, and they only get harder to untangle as you scale.

Why Discounts and Promos Complicate E-Commerce Accounting

Here’s why discounts and promos make e-commerce accounting harder:

Misalignment Between Gross Sales and Real Revenue

This is one of the most common issues in accounting for promotions. Most e-commerce platforms log gross sales, but if discounts aren’t tracked as their own entries, your revenue figures will mislead your investors, internal teams, and tax software.

This impacts:

A mismatch between financial records and real-world sales data also erodes trust between finance and marketing teams, and hampers decision-making across the board.

Risks of Misreporting and Tax Miscalculations

E-commerce compliance has never been just about filing forms. It’s about tracking how every dollar comes in.

If you’re applying discounts in Shopify but not classifying them in your accounting platform or tool, you’re creating blind spots that:

• Lead to state-level tax misfilings

• Complicate your COGS calculations and reorder planning

Worse: if your refunds and discounts aren’t aligned, your promotional expense tracking becomes nearly impossible.

Delayed Reconciliation Between Campaigns and Cash Flow

Many sellers run campaigns before fully understanding how the discounts impact their financial position.

For example, you might offer 40% off in a month that already has weak margins. And by the time your accountant flags the shortfall, the sale is over and the damage is already done. 

Without real-time or close-to-real-time reconciliation between promotions and cash flow, you risk running negative profit campaigns without even realizing it.

The point is, if your marketing and finance don’t share data and collaborate, your profits are going to walk out of the door.

Types of Discounts and Their Accounting Implications

Let’s understand different types of discounts and their accounting implications:

Percentage-Based vs. Fixed-Amount Discounts

Percentage-based discounts scale with item value, while fixed-amount discounts apply uniformly.

From an accounting POV:

• Percent-based reductions must be prorated across multi-item orders.

• Fixed-amount discounts may skew margins if not evenly attributed.

If you use both, your coupons and bookkeeping must include tagging logic to separate them, or your financial reporting will never match your marketing dashboard.

Coupons, Promo Codes, and Freebies

These aren’t one-size-fits-all. Depending on how you structure them, they may count as:

• A reduction in top-line revenue

• A deferred liability (especially for unused coupons)

E-commerce discount accounting must reflect:

• Coupon origin (store vs. manufacturer)

Bundled Deals and BOGO Offers

This is where handling discounts in e-commerce gets truly technical. Every product in a bundle still has its own COGS.

When one is “free,” you’re absorbing that cost, so you must do the following things:

• Allocate revenue proportionally

• Adjust your inventory at the SKU level

• Reflect margin impacts accordingly

Failing to do this causes discrepancies in inventory valuation, profit margin tracking and refund adjustments.

Flash Sales And Seasonal Promos

Flash sales and seasonal promotions can be great for driving urgency, clearing stock, or boosting short-term revenue.

But they also introduce layers of complexity that many e-commerce founders overlook, especially when you’re juggling volume, logistics, and accounting all at once.

Here’s what makes them tricky:

• Refund spikes: With time-bound pressure, customers often make impulse purchases and later request returns. If your refund logic doesn’t account for promo pricing, it skews your revenue recognition and affects tax records.

• Stock misalignment: Flash sales often deplete inventory quickly, but if stock updates aren’t synced in real time with your sales platform and accounting tools, it can lead to overselling, backorders, or phantom inventory.

• Promo code misuse: Limited-time or one-use codes can be exploited or stacked improperly, especially if your backend doesn’t flag suspicious redemptions or reconcile them with your GL.

To avoid all this, promo campaigns, especially high-volume ones, must be synced across your inventory management, accounting software, and POS systems.

Otherwise, you’ll be left with what looks like a successful campaign on the front end and a compliance mess behind the scenes.

How To Record Discounts In Your Books (With Examples)

There are three key areas where discounts impact your accounting:

• How you report your revenue (gross vs. net)

• Where you record the cost of the discount (contra-revenue vs. marketing expense)

• How you handle refunds after discounted sales

Gross Vs. Net Revenue Approach

Gross revenue is the total amount before any discounts.

Net revenue is what your business actually earns after discounts.

For most U.S.-based businesses, both the IRS and GAAP recommend using the net revenue approach, especially when you’re the one offering the discount. That means you record what the customer paid, not the full price of the product.

Example:
You sell a product for $100 and offer a 20% discount. The customer pays $80.

How to record it in your books:

• Discount Given: $20 (tracked in a separate discount account)

This keeps your income reports accurate while letting you track how much you gave away in offers. If you record the full $100, you’re overstating your revenue, and most likely overpaying taxes.

Recording Discount Expenses Properly

Not all discounts are handled the same way. Depending on how the discount was applied, it could be:

• A contra-revenue item that reduces sales directly

• A marketing expense that you record as a cost to drive sales

Use this rule of thumb:

• If the discount was applied automatically at checkout, it’s a price reduction and should reduce your sales (contra-revenue).

• If the discount was used through a promo code, referral, or influencer partnership, it’s a marketing expense.

Example A (Contra-Revenue):
You run a flash sale. The product is $150, and a $30 discount is applied at checkout. The customer pays $120.

You should record it as:

• Discount: $30 (under “Sales Discounts” or “Contra-Revenue”)

Example B (Marketing Expense):
You give influencers a code offering $20 off. The product is $100. The customer pays $80.

You should record it as:

• Expense: $20 (under “Marketing – Promo Codes” or similar)

This distinction matters because it changes how your profits and marketing spend are reported, and helps you track how much sales were driven through paid campaigns vs. direct discounts.

Customer Refund Scenarios After Promo Purchases

Refunds aren’t always straightforward, especially when they involve discounts. The key is to refund based on what the customer actually paid, not the original price.

Example A: Full Refund After Promo Ends

You refund $70 and reverse $70 from income. If inventory is restocked, you should adjust that too.

Example B: Partial Refund From Bundle Deal

• Bundle price: $80 for Product A ($60) and Product B ($40)

• Customer returns Product B

You prorate based on value. Product B = 40% → $32 refund

Over-refunding affects margins. Under-refunding upsets customers. Prorating keeps your reporting clean and fair.

Impact On Sales Tax & Compliance

Depending on where your customer is, the type of discount you offer, and how you apply it, your taxable amount can either shrink, stay the same, or, in rare cases, might trigger red flags. 

Let’s dive deeper into it.

When Discounts Reduce Taxable Amount

In most states, if you (the seller) are offering the discount, then the discounted price is the taxable amount.

Example:

• You offer a 20% discount. So, the new price is $40

• The customer pays $40. In most states, sales tax applies to $40, not $50

But here’s where founders get tripped up: If the discount is funded by a third party (like a manufacturer’s coupon), some states still require you to charge tax on the full price.

So, always ask:

• Is this my discount or someone else’s?

• Did the customer pay less because of me, or because of a third party?

Remember, if your checkout or POS system doesn’t update sales tax after applying a discount, you’re likely overcharging your customer or under-collecting tax, both of which are compliance risks.

How Different States Handle Sales Tax On Promos

Sales tax rules aren’t one-size-fits-all. Let’s look at three major states with unique approaches:

New York

• If you offer the discount, tax applies to the discounted price.

• But if it’s a manufacturer’s coupon, tax may apply to the full price.

• Free shipping during a promo? That’s taxable if the item is taxable.

Texas

• Seller-funded discounts = tax applies to discounted price

• Manufacturer coupons = tax applies to pre-discount price

Watch out: clothing under $100 is tax-exempt during Texas’ “Tax-Free Weekend,” but only if sold at full price. Promo items may not qualify.

California

• Discounts lower the taxable base if properly documented

• Sales tax is still due on delivery fees, even if the item was discounted

• For bundled deals, tax treatment depends on how you allocate value across items

Want a full breakdown for your state? Check out doola’s state-by-state sales tax guide.

Avoiding Audit Red Flags

Discounts may be good for customers, but improperly recorded promos are one of the top reasons e-commerce brands get flagged in audits.

Here are the top 3 red flags to avoid:

🚩 Applying discounts but charging tax on full price. Fix this by checking if your POS adjusts taxable value after applying the discount.

🚩 Misclassifying third-party-funded discounts. If a vendor funds the promo, you may still owe tax on the full price. So, involve your accountant here.

🚩 Not keeping clear records of discount campaigns. You need to prove which sales were discounted, by how much, and why. If your GL and receipts don’t match, that’s a BIG risk.

🧾 Compliance Checklist Make sure your discount setup is audit-ready: ✅ Does your checkout tool apply tax after discount is applied? ✅ Are third-party vs. seller-funded promos tracked separately? ✅ Can you trace each discount to a specific campaign or code? ✅ Do your invoices reflect post-discount taxable amounts accurately? ✅ Are you using the correct tax rules for each state you sell in? Founders don’t get in trouble for running promos. They get in trouble for not tracking them right. Want help getting your tax handling audit-ready? doola’s e-commerce compliance service helps set it all up, so discounts don’t come back to bite you.

Best Practices For Tracking Promo Costs And ROI

You can’t improve what you don’t measure, and that includes your discount strategy.

While discounts may feel like a marketing win in the moment, they can quietly eat into your margins if you’re not tracking the true cost of each campaign.

Here’s how to track promo costs and measure ROI the right way.

1. Track Discounts Like You Track CAC, With Granularity

Founders will break down their Meta ads by copy variation, audience, and CTA.

But when it comes to discounts? It’s all dumped into “Marketing – Discounts” or worse, not tracked at all.

A real-world issue that our experts have seen:

A DTC skincare brand was offering 20% off via influencers and 15% off via email popups. But in the books? All discounts were logged under “Sales Adjustments.”

No way to tell which channel worked. Meanwhile, refunds from email buyers were 4x higher.

What should they have done:

• Create separate GL accounts (or at least tags) for Promo_Influencer and Promo_EmailQ2

• Reconcile discounts with conversion and refund data weekly

• Align it with customer LTV to know who actually came back

📌 doola’s take: If you can’t isolate the discount’s origin, you can’t optimize it.

2. Break Out Promo Costs In Your P&L To See The True Story

Your Profit & Loss (P&L) statement might show healthy net sales, but unless you break out the cost of discounts, you’re not seeing the full picture.

Most e-commerce platforms and accounting tools lump everything into broad categories. If you’re only reviewing net revenue, you’re missing key questions like:

• How much did I give away in discounts to get these sales?

• How did that impact my margins?

• Did those promos inflate revenue and throw off tax estimates?

To fix this and get a more honest view of performance:

• Run monthly reports that show Gross Revenue, Discounts Given, and Net Revenue, all as separate lines

• Add these figures to your marketing and sales ops reviews so the whole team understands the cost of revenue, not just the top-line gains

• Track CAC adjusted for promo spend (e.g., how much you spent including discounts to acquire each customer)

3. Track Refunds By Promo Campaign To Protect Your Margins

A flash sale might bring in a surge of orders,  but what happens after the hype dies down is just as important.

In many cases, discounts tied to urgency (like limited-time offers or aggressive email blasts) can lead to a wave of refunds right after the campaign ends. These are often driven by impulse purchases that customers later regret.

The problem? Your revenue reports might show a great sales spike, but after the refund flood, your true margin retention is next to nothing, and you won’t realize it unless you’re tracking refunds at the campaign level.

Here’s how to turn this into a smart system:

• Tag refunds in your POS and accounting system by promo campaign or discount code

• Match every refund to the promo it came from, not just the order date

• Look at refund rates per campaign, not just overall

4. Use Analytics To Measure Promo Effectiveness (Not Just Sales)

It’s tempting to call a promo successful when revenue spikes, but unless you track profitability and retention, that spike might just be vanity.

To truly know if a promo worked, monitor how it impacted your core metrics:

• Margins — Did you discount so much that you barely broke even?

• CAC — Did customer acquisition cost increase or decrease with the promo?

• LTV — Did you attract one-time bargain hunters or long-term loyal customers?

What founders should do:

• Use tools like doola Analytics integrations to track these KPIs per campaign

• Set up dashboards that show Promo Cost vs. Revenue vs. Retention, so you’re not flying blind

• Tag each promo campaign in your systems to trace results across the funnel (from click to refund)

Common Mistakes To Avoid When Accounting For Discounts, Coupons, And Promos ⚠️ Mistake #1: Double-counting discounts You record a discount as both a reduction in revenue and a marketing expense. Fix this by: Choosing one method based on your accounting approach—contra-revenue or expense, not both. ⚠️ Mistake #2: Not tagging promo expenses Lumping all discounts into generic accounts hides promo performance. Fix this by: Creating separate GL codes or tags (e.g., “HolidayFlash2025”) for clean reporting. ⚠️ Mistake #3: Forgetting sales tax implications You apply discounts but don’t adjust taxable amounts where needed. Fix this by: Understanding state rules and ensuring your system recalculates tax correctly post-discount.

Automating Discount Accounting With Tools 

Manually tracking discounts might feel manageable when your store is just starting out, but once you begin running multiple campaigns, across multiple platforms, with refunds, bundles, and coupon codes involved… things can get messier. 

That’s where automation tools step in.

E-Commerce Discount Accounting: What Automation Does for You

Captures Discounts at the Source

When integrated correctly, your POS or sales platform (like Shopify, Amazon, or WooCommerce) automatically pushes discount data, including codes, applied values, and campaign names, into your accounting system. This removes the need for manual data entry.

Classifies Transactions Accurately

Good accounting tools will auto-tag discounts as either contra-revenue (a direct reduction of sales) or marketing expenses (for promotions like freebies or influencer codes). This helps you keep your P&L accurate.

Syncs With Inventory and Tax Settings

Automated systems ensure that any promotions affecting inventory or sales tax, like BOGO deals or state-specific discounts, are reflected instantly in your financials, so you don’t underreport or overpay.

Handles Refunds Cleanly

If a promo purchase is returned, the system matches the refund to the original sale and discount, updating your records in real time. That keeps your revenue, margins, and tax liability clean and correct.

Provides Real-Time Reports

You can generate live dashboards showing how much your discounts cost you, what your actual margins are after promos, and whether those campaigns drove profitable growth.

How doola Helps Automate And Ensure Compliance In E-Commerce Discount Accounting Here’s what doola brings to the table: 🎯 Real-Time Financial Visibility: Offers dashboards that show what’s actually happening behind your sales, like promo costs, net revenue, and refund impact. 🎯 Audit-Friendly Documentation: If you’re ever under review, doola keeps a clean paper trail of your promos, pricing, and tax handling, all automatically. Book a demo now.

Simplify Your E-Commerce Discount Accounting With doola

If promos, refunds, and tax rules are eating into your decision making clarity, it might be time to hand off the complexity to a partner who gets it.

doola’s E-Commerce Tax & Compliance Services are built for founders like you who care about the long game, not just short-term spikes.

Book a demo to explore how doola can help you protect your margins.