Dealing with Rebates

[dragonfly1772]

When we purchase building materials from a home improvement store, we often get mail-in rebates back a few months later, but the rebates must be re-spent in the home improvement store, and since we already paid tax on that money when we initially bought the original product that we got the rebate back on, the rebate money is not taxed again when we spend it in the store again. I am confused as to how to classify and record this in the bookkeeping, such as an asset, etc. and will we be taxed again on this at the end of the tax year.

 

[kirby]

If the home improvement store offered an item for $500 original price but had it on "special" for $400 then if you bought it you would record it at $400 cost. The store rebate coupon just entitles you to get a special price on whatever you choose. Accordingly, record whatever you buy at what the store charges you (original cost less rebate) which is, again, the cost. There is no related additional tax.

 

[dragonfly1772]

Thanks Kirby, but just to make sure we are on the same page, I pay the full price up front, and have to mail in for the rebate. If I record this transaction right away, as if I have already received the rebate, but then miss the mail in rebate deadline, (which I did overlook once), then what is the best way to correct that in the bookkeeping, since I already recorded it as having paid for the items minus the rebate, but now would not actually get the rebate back due to missed deadline?

 

[Samir]

I'd record the initial expense in full since that's what you paid. I would have a separate entry for a current liability called 'Rebates Receivable'. I'd debit this account and credit whatever expense account I initially expensed since it reduces that expense. Another way to treat it would be to count it as 'Rebate Income'.

In the scenario you don't get the rebate for some reason, you can create a new entry crediting 'Rebates Receivable' and debiting the expense again, which will bring the expense amount back to the original amount.