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What is the proper accounting procedure for services sold at coupon prices? Take a regularly priced at $30.00, $10.00 is labor and $7.00 is parts and oil is $13.00. A cooupon is put out for the same oil change to be done for $20.00, where should the discounted $10.00 go in accounting? Should it go directly against the labor and/or parts profit or should it go to an advertising account since that is the real reason we run coupons? Advise would be appreciated.

There are two schools of thought on that and you hit them both.

What I prefer, and what I believe to be the proper way, is to put the coupon discount into advertising expense. The main reason being that you don't want your percentages affected negatively on an already, lof especially, low margin operation. If you apply the coupon to the sale then margins are reduced. Most manufacturers generate reports comparing you to other dealers in your district, zone, etc., and reduced margins due to coupons will render the comparison useless. Not important in some operations I know. If you hold managers to task though and margins are a concern, then flag the discount as an expense.

topdog,
I'm glad you posted this topic. I checked our store and found out that this expense is put into advertising expense. However I discovered that it is being put in the advertising expense on the Parts Dept" side only. I'm going to approach the boss about this. Thanks for the heads up topdog! What does everyone think is a equitable way of splitting this between departments?

A coupon is a discount to get a sale therefore it should be part of the cost of sale. If you normally sell a brake job at $200 but offer a $20 discount coupon than your sale amount should be $180. Putting coupons or discounts to advertising hides what you are actually making gross profit wise.