Marketing fund accounting

[abanerji]

A business partner (supplier) provides marketing funds periodically to our business. It is left to the discretion of our business how these funds are used.

We have been treating these funds as a Balance Sheet item, and marketing expenses are debited to the fund account, thus often leaving a surplus in the fund account.

Should these funds be credited to revenue, and marketing expenses debited to P&L instead?

What if the funds received are non-discretionary, and specific marketing expenses are to be incurred from these? Would a "Balance Sheet" treatment be more appropriate then? Or, even then, both funds and expenses should still be transferred to P&L?

 

[kirby]

Those funds are not revenue. As I understand the agreement the funds are given to you to offset your marketing costs. So when you receive those funds you should DR cash and CR Liability to your business partner (who could ask for those funds back - those funds are not yours) then after you pay a marketing expense related to those funds you DR the Liability to your business partner and CR the marketing expense account. So yes, the unused funds should be on the Balance Sheet

 

[abanerji]

Thanks for your response.

I wanted to add a further point. These funds are discretionary to our business, and any balance is never to go back to the funding partner.

Should the Balance Sheet approach still be more appropriate, or should we follow P&L routing then?

 

[kirby]

If business partner can never get funds back, I would still use balance sheet approach but instead call the acct something like "Deferred Credit - Marketing"

 

[Samir]

One problem with treating those funds at income is that you can pay tax on those funds if you don't spend them all in a given fiscal year.

With the balance sheet method, you get all the benefits of expensing without the taxation issue of taxable income. And for other reasons stated in the thread, these funds are more like a balance sheet item than a source of income.