For Example a Vendor gave us a $500K credit to an item that normally is a component of our COGS. We receive a statement each month from the company showing the amount of the credit we have used. Seems that I would still record this item as a COGSs sold (debit) and the credit would be to some sort of rebates received income. As far as the rebates received would that be an other income item, like interest below the line? Debit- Cogs Credit- ????
How do I account for Vendor Rebates
Answers
Anon
Look at the rebate terms/agreement. Is it an incentive for reaching a quota/target of (1) purchases from them or (2) your sales of their products? Is it an offset for market development costs you incurred?
The debit seems it would be on their AP account (a reduction of what you owe them) and the credit based on your review of the rebate terms.
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They don't send us any invoices. It is not an incentive for reaching a quota or for sales for reaching their products. Basically it's just a bunch of credits to help start ups, a program that we were accepted into. We were paying for the service before and now its just free up to a certain point.
You should be accruing for the credits, and when they come adjust the accrual.
It is NOT technically a "rebate". You have to pay something first to have a "rebate". From your succeeding response, I would liken it to a "grant" or free money.
I would book it to Other Income and Accounts Receivable (think Credit Memo). I would also NOT do anything to COGS (as it distorts your margins). I would charge the A/R everytime (offset to COGS) to monitor the amount of credits still available. Once the A/R (credits) is consumed, then the normal A/P (payment process) should be restored.
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