Case 13-1 Essay

946 Words4 Pages
Hoang Thi Thanh Ha – 13200154 Case 13-1 Refer-a-Friend Program 1. How should the $25 Referral Credit be record in Runway’s Income Statement – as a reduction of revenue or as a marketing expense? By implementing the “Refer-a-Friend Program” Runway Discount is taking the proper steps to increase its sales and its customer base. With the application of this program, however, there are some additional procedures that must be followed when recording transactions involving the $25 Referral Credit. According to ASC 605-50-45-1 Revenue Recognition, a vendor may give a customer a sales incentive or other consideration. This Subtopic addresses the circumstances under which that consideration is either: (a) An adjustment of the selling prices of the vendor’s products or services will therefore be characterized as a reduction of revenue when recognized in the vendor’s income statement; (b) A cost incurred by the vendor for assets or services received from the customer and therefore characterized as a cost or expense when recognized in the vendor’s income statement. So, how the referral credit will be documented on the income statement that depends upon whether the consideration is in the form of cash or in the form of a free product or service According ASC 605-50-45-2 and 605-50-45-3, Cash consideration includes not only actual cash payments to the customer, but also incentives that reduce the customer’s present or future payment obligation. For example, credits against future purchases are a cash consideration. Examples of free products or services include gift certificates or free airline tickets that will be honored by another, unrelated entity. Therefore, in this case, the $25 Referral Credit will be recorded in Income Statement as a reduction of Revenue. 2. When would Runway record the $25 Referral Credit? What are the entries Runway would

More about Case 13-1 Essay

Open Document