USA Accounting for contractor work supporting a free trial (COGS or OPEX?)

[DavidR]

Hello,

My company engages contractors to support our offering to our customers. This contractors work is classified as COGS as it is directly supporting revenue, and we could not earn the revenue without it.

We are launching an offer to give away these services to potential customers without any commitment - a promotional trial of sorts. We still have to pay these contractors at their regular rates. As this is a no-commitment, no revenue trial - is this work still COGS, or should it map it S&M OPEX expense (as it is not associated with revenue yet)?

Any insight and GAAP guidance you know of that could support your insight would be much appreciated!

Thank you

 

[Fidget]

I'd classify the cost of that as a marketing or advertising expense. Reason being that the promotion is for the purpose of trying to generate revenue, so it doesn't sit within cost of goods sold.