USA Referral Credit

[ajackson6]

If I give a referral credit to someone for referring a friend would I treat that as a reduction in revenue or as a marketing expense? I have not been able to locate anything that relates to this topic. This is for a class assignment so if you have a link to a source either IFRS or US GAAP that would much appreciated.

Thanks,
Aaron

 

[Counterofbeans]

An example would be helpful, for I'm not sure of all the facts and cash flows here.

This sounds like an (old) EITF 00-14 issue, which I believe is now covered by ASC 605-50 (doesn't sound like 605-25, the infamous, "Multiple Deliverable" revenue recognition standard which will likely be revised this fall/winter).

This referral credit, is it given in cash or is it a, "free" product/service or anything other than cash (including "credits" that the customer can apply against trade amounts owed to you)?

If it's cash, it's likely a reduction of the selling price/revenue (certain exceptions apply).

If it's the "non-cash," it's likely considered an expense (again, certain exceptions apply).

ASC 605-50 has like 15 different examples.

 

[cmesh]

Aaron,

The accounting and presentation for customer incentives are covered under ASC 605-50. Specifically, 605-50-55-84 provides an example of coupons that can be redeemed by a customer (the closest analogy to your situation), indicating that the value of the coupons should be treated as a reduction of revenue at the time of the customer's redemption of the credit in a transaction. Like Counterofbeans indicated, there are several examples and a variety of exceptions.

You can access the standard referenced above by going to fasb.org and signing up for the free membership. Additionally, you can access some tools to help apply that standard to different transactions at theGAAPpost.com.

Hope that helps.