Revenue recognition and sales accounting within the framework of partner bonus programs

Abstract

Many advantages of Customer Loyalty Programs have been debated in the specialized literature for decades. Their widespread implementation entailes the need for decisions about the economic nature of awards, i. e. whether they are an expense, an asset, a revenue or a liability, which will determine the method of their accounting and the period of the revenue recognition.

In order to find the best way of awards accounting, the paper aims to clarify the advantages and disadvantages of different points of view on the awards recognition: as marketing tool, advertizing, advance payment or accounts payable. According to the analysis, the two most sound approaches to the awards accounting are: (i) cost/provision method, by which the award credit is recognized as the expense and accounted by IAS 3 7, and (ii) deferred revenue method, by which the revenue is deferred as the goods not delivered yet; the amount deferred is to be recognized in revenue only when the awards are redeemed.

The reasonability of awarder edit accounting as a separately identifiable component of the sales transaction(s) in which they are granted and the appropriate endless of the control account 475 “Provision for prize money” in the account 47 “ Provision for future payments ” for awards accounting by fair value is shown.