Revenue gets recorded at the price you actually charged, not the original sticker price. If a $100 item sells for $60 during clearance, you record $60 in sales revenue. The markdown itself isn’t a separate expense or adjustment to revenue. You simply sold something for $60.

What makes markdowns sting is the cost side. You paid the same amount for that inventory whether it sells at full price or 40% off. If the item cost you $50, selling it for $100 gives you a $50 margin. Selling it for $60 gives you a $10 margin. Your cost of goods sold stays at $50 either way.

The key is tracking marked-down sales separately from full-price sales. Most accounting software lets you use classes, tags, or location codes to flag clearance transactions. Some retailers create a separate revenue account for clearance sales. Either approach works as long as you’re consistent. Inventory accounting done right gives you visibility into how much revenue came from markdowns and what margin those sales actually produced.

For inventory still sitting on shelves, accounting rules require you to value it at the lower of cost or market value. If you paid $50 for items you’ll realistically sell for $30, your books should reflect that $30 value. This adjustment hits your cost of goods sold and reduces your inventory asset on the balance sheet. It’s not fun, but it gives you an accurate picture of what your inventory is actually worth.

The real value of tracking markdowns comes from the patterns you can see over time. If certain vendors or product categories consistently end up on clearance, that tells you something about your buying decisions. Seasonal merchandise that always gets marked down 50% before it sells through might need smaller initial orders. Products that never need markdowns might justify larger buys.

Phoenix area bookkeeping services that understand retail can help you set up tracking systems that give you this visibility without creating extra work at checkout. The goal is capturing markdown data automatically so you can review it monthly and adjust your purchasing accordingly. Without that tracking, you’re just guessing about which products make money and which ones quietly drain your margins.