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Rebate accrual accounting

Johnny Manche's Profile

What method should you use for GAAP accounting on rebate growth incentives throughout the year. How do you account for it in the beginning of the year when no incentives have been met? Do you account for it all at the end of the year when the sales volumes have finally met the incentives or do you use past historical volumes to recognize the rebate cost sooner in the year as an accrual?

Answers

Harold D. Tamayo
Title: Vice President of Finance
Company: MHA Inc., a Roper Technologies Company
LinkedIn Profile
(Vice President of Finance, MHA Inc., a Roper Technologies Company) |

What are your current issues? Do you have a big spike at the end of the quarter for quarterly rebates and at the end of the year for yearly rebates? Past historical volumes can work if your product lines are steady in terms of performance. However, if you are changing strategies then you should accrue based on those expected business changes. Once you establish a methodology which should be down to the SKU level, then you would have your basis for an accrual. Recognizing rebates at the end of the year can lead to major financial surprises because of your earnings volatility.

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