Accounting for a rebate payment

[JR1976]

Hello,

I’m looking for some help regarding the accounting for a rebate payment.

The business is a recruitment agency and as part of the contract a rebate / refund of a portion of the fee is due if the candidate placed leaves within a certain period of time.

I’ve not actually been in the situation where I have to pay a rebate before so I’m unsure how to deal with it accounting wise.

The company’s year-end is coming up soon and as such although the candidate left in this current financial year, if I was to make the rebate payment it would probably fall in the next financial year (currently looking for a replacement to negate the need to pay a rebate).

How would I account for this? Would it be classed as a refund on the original invoice and fall in the current financial year (regardless of the timing of the payment)? Or would it simply be classed as a loss next year?

Would work out better if I could account for it in this financial year really so that’s what I’m hoping for but obviously I don’t want to get it wrong!

Any help that could be given would be great.

Thank you.

 

[JR1976]

Are you aware of recent FASB changes requiring that promotional
discounts like this are actually entered as a reduction in revenues?
I'm not familiar enough with the FASB changes to understand whether
they apply at only the factory or the retail level as well, but it's
clearly an issue with this question.

I'm not aware of any rules or regulations in this area, but if you are saying that i simply reduce the revenue, for example £5k fee with £1k rebate i just account for as a £4k fee, this makes sense and is what i was hoping for really.

I just wanted to make sure that making a rebate payment is not counted as a separate thing to the original invoice and as such accounted for in the period it is paid in (in this case most likely my company's next financial year).

 

[David Griffiths]

I'm not aware of any rules or regulations in this area

You wouldn't be aware of any FASB regulations as it is an American organisation and is completely irrelevant in the UK. It seems that richerdjohn doesn't realise that the UK isn't part of the US of A. It's also pretty obvious that he doesn't know the difference between a "promotional discount" and a contractual amendment to the fee.

The original question goes a lot deeper than dealing with a simple refund. To answer that question you can provide for the repayment in the current year because the event that triggered it is in the current year

The deeper area is the whole question of revenue recognition. If you raise a fee for a recruitment in, for example, December but there is a provision for the fee to be rebated if the candidate leaves in Jan, Feb or March then in my opinion you shouldn't account for the full revenue in December, but spread the income over the rebate period. You should be making a provision to reflect that at the end of each financial year, and should discuss this with your accountant

 

[honada]

Normally I deal with Rebate as an accrual figure of what the expected payment could be and charge it as a total for one month or spread over several months. The circumtances are not identical but close to the situation.

Hope this helps.