The good news is that most markdowns don’t require special journal entries. When you sell a sweater you bought for $30 at a marked-down price of $40 instead of $60, your point-of-sale system records $40 in revenue and your cost of goods sold is still $30. The margin just got smaller. Your books capture this automatically as long as your POS and accounting software are connected and your cost basis is accurate.

Where it gets more involved is tracking how much margin you’re actually giving up. If you run a 20% off storewide sale for a weekend, your revenue drops but COGS stays the same per unit. You want to be able to see that impact in your reports. Setting up sales categories or using discount tracking in QuickBooks lets you measure how much you discounted and whether the volume increase made up for the lower margin. Without that visibility, you’re guessing whether the sale was worth running.

Clearance markdowns are a different situation. When you’re selling items below what you paid for them, the lower-of-cost-or-market rule may apply. This is an accounting principle that says inventory should be valued at whichever is lower: what you paid or what it’s currently worth. If you have $2,000 in seasonal merchandise that you know will only sell for $800, you should write that inventory down to $800 on your balance sheet. The $1,200 difference hits your books as a loss. This keeps your financial statements honest rather than showing inventory value that doesn’t exist anymore.

Most boutiques using average cost as their inventory method will see markdowns flow through naturally when items sell. The average cost per unit stays the same regardless of the selling price, so your COGS is consistent and your margin just reflects reality. The problem comes when items don’t sell at all and sit on shelves losing value. That’s when you need to evaluate whether a write-down is appropriate.

A few practical habits make markdown accounting cleaner. Tag your markdowns in your POS system so you can pull reports showing full-price sales versus discounted sales. Review aging inventory monthly and flag items that haven’t moved in 60 or 90 days. When you decide to clearance something, make the inventory accounting adjustment at that point rather than waiting until year end when you’re trying to remember what happened eight months ago.

Seasonal businesses like boutiques deal with this cycle constantly. Spring inventory gets marked down in summer, holiday inventory gets cleared in January. Building markdown planning into your regular bookkeeping routine means your financial statements always reflect what your inventory is actually worth, not what you hoped it would sell for. If you need help setting up tracking systems that give you real visibility into margin by category, our Wisconsin small business bookkeeping services include getting your chart of accounts and reporting structured for exactly this kind of analysis.