Our Accounting Team is debating of when to account for the sale discount when we sell into Amazon. For example, we are selling $1,000 in the product to Amazon in June for a July promotion. We offer a 10% discount on any sales made during the month on July. Since the discount is based on what Amazon sells, we are planning on taking the adjustment in the July period. Some other folks in Accounting are making an argument that the discount should be estimated in June. Does anyone have any guidance on the proper accounting for this?
Accounting for Sell-Through Discounts
Answers
Interpreting your question, you make a provision of $1,000 in the month of June for a promotion you are planning in the month of July. The actual discounts will only be offered and given to the customers in the month of July when they buy through Amazon.
Thus, in the month of June when you make a provision, the expense is neither accrued nor due. The expense will only be accrued or due in July. The expenses should only be accounted in the books when the expense is accrued or due whatever happens early.
Thus, you should only debit discount account in July against actual discounts offered!
Let me know if this helps or if you need any further clarification.
1
Victor,
Thank you. I was looking for specific GAAP guidance but could not find it. Do you know what that guidance is or where I can find it?
Hi,
The discount should be recorded as per "Matching Principle" of GAAP.
https://en.wikipedia.org/wiki/Matching_principle
You can refer to the Matching principle, wiki with more reference links and details. The first line of this principle reads out as "In accrual accounting, the matching principle states that expenses should be recorded during the period in which they are incurred, regardless of when the transfer of cash occurs."
I hope this helps.
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Accounting