Gaap accounting for coupons

The date at which the related revenue is recorded by the vendor, or The date at which the sales incentive is offered. Lodging incentives are recognized at the time the services are provided, which means the accounting related to those incentives—value-added packages and lower rates—is generally less complex than that related to the incentives used frequently in restaurants. Hotels may bundle packages for lodging, spa treatments, and food and beverages for one fixed price. The revenue is separated into the various components, and the revenue earned is allocated to the various departments. In addition, if a hotel is offering a promotional discount in which the guest will receive the fourth night at no charge after three paid nights , hotels record the revenue for the three paid nights at the negotiated room rate and the fourth night, in this example, at the free amount.

Also, all of the major hotel property management systems are reporting net revenue consistent with the more practical method of recording zero revenue for the fourth night. Promotional coupons that offer a designated value for a new restaurant or spa treatment at the hotel upon the next visit are also popular.

The accounting treatment for recording these types of incentives is similar to the treatment of incentives commonly used in restaurant operations. Since these promotional coupons are offered voluntarily and without charge, the revenue is reduced by the discount amount at the time the coupon is presented. This treatment assumes that the promotional coupon is not redeemable for cash value, nor will a loss result from the sale. Companies that issue discounts or coupons that have a cash value or allow a reimbursement are subject to different accounting treatment.

Incentives used by franchisors may require that a franchisor or vendor that is providing a form of cash reimbursement to the retailer recognize a liability for the estimate of the dollar amount of discount coupons expected to be used. However, incentive programs that have a cash value or allow a reimbursement require the vendor to recognize a liability for the estimate of the dollar amount of discount coupons expected to be redeemed. The goal is to improve comparability by implementing a single revenue recognition model across industries and across the globe.

The new rules eliminate industry-specific accounting for revenue under U. GAAP, the standards for financial accounting and reporting all companies listed on U. They seem to still be in denial, however. The standards focus mainly on the revenue from contracts with customers. In some cases those contracts will be easily identifiable and information about their terms and conditions will be readily available. In other cases, companies have to look at activities and transactions in a new way.

MarketWatch reporters will be watching and reporting on any new disclosures about the impact of the new standard during this coming earnings season.

Accounting Treatment for Promotional Cards | BDO Restaurant Industry Blog

See also: Four key sectors to watch closely this earnings season. The new standard eliminates previous media industry-specific revenue recognition guidance and imposes new criteria to determine how revenue will be recognized, in particular license revenue. That change will significantly affect many entertainment and media companies.


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Media and entertainment industry may now accelerate revenue recognition for certain types of licenses while others could be deferred. Time Warner Inc. US:TWX made a detailed disclosure in its first quarter filings with the SEC of the potential impact of the new standard on its business model.

Accounting for Sales Incentives Used in the Restaurant Industry

Time Warner expects to see new deferrals related to future leased library content that will primarily impact its Home Box Office segment. Currently revenue is recognized once access to the library is granted to the licensee. Time Warner also says revenue for the renewed license term will not be recognized until the date the renewal term begins, compared with now, when it is recorded on the date the renewal is agreed to contractually. This new deferral will primarily impact its Warner Bros. Finally, revenue from licenses of symbolic intellectual property such as brands, trade names and logos will be deferred too, primarily for the Warner Bros.

Banks and financial services firms will not see as many changes to their core business as some other industries, but the impact will still be felt, according to recent disclosures. Read: Banks are beginning to admit a new rule on revenue recognition will have an impact. The asset-management industry will also see changes in accounting for upfront fees, upfront costs, and performance-based fees.

For example, the new standard will require upfront fees to be deferred or recognized immediately, depending on whether or not the customer activity includes a distinct service that is provided upfront. Asset managers will now recognize sales commissions—the incremental costs of obtaining a contract with a customer—as an asset, not an expense, if it expects to recover those costs.

Return-based performance fees are now considered variable consideration, so the asset manager will recognize revenue when the amount becomes fixed and is no longer subject to reversal, such as at redemption. Morgan Stanley said that if it determines the fees are within the scope of the new rules, there will be a significant delay in the recognition of these fees as revenue in the future. Automotive industry companies, including suppliers, dealers, original equipment manufacturers and their finance affiliates, will be significantly affected by the new revenue standard, which replaces all current revenue recognition guidance for companies reporting under U.

The automotive industry will have to adopt new accounting for preproduction activities, such as design and tooling arrangements, marketing incentives like cash rebates, volume rebates, repurchase options, product warranties, contract costs, and lease financing arrangements. New accounting for warranties could result in revenue deferral.


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Customer contracts containing repurchase options will now be accounted for as a lease when the customer has the right to require the company to repurchase the vehicle and the customer has a significant economic incentive to exercise that right. Under the current IFRS methodology for payment received in advance of future use, the methodology is to recognize the revenue only when the card is used for payment. This means that the revenue from the sale of a gift card is accounted for upon redemption of the gift card. No specific models are provided for recognizing breakage.

Under the new model, breakage is figured into the obligation, or liability. Expected breakage should be estimated based on historical trends and recognized as revenue in proportion to the pattern of customer behavior.

Gift cards under the new revenue standard

If the retailer is unable to estimate the breakage amount, revenue for the unused portion of the gift card is recognized when the likelihood of the customer exercising his or her remaining rights becomes remote. Below is an example from CFOdirect regarding the impact of the new joint model for determining liability for gift card and certificates. Expected breakage should be estimated and recognized as revenue in proportion to the existing pattern.

The specific guidance for breakage in the new revenue standard should eliminate the diversity in practice that exists today. Checking with your finance division is certainly the first step to ensuring that your company is keeping up with the new regulations. Many of the large third-party auditors are providing updates and advice to their clients now that the ASU documents have been published.

For a complimentary one-on-one discussion, call us at PDF , accessed Aug.

Revenue Recognition – Accounting for Discounts and Sales Schemes

Revenue recognition information, EY. CCG is a full-service retail marketing agency with a multi-functional team of customer relationship marketing CRM and loyalty strategists, analysts and creatives. As pioneers in the field of retail loyalty marketing, we have developed, launched and managed innovative CRM initiatives for retail clients across the country.


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