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Referral Fee Paid to a customer ....

If a customer makes us a referral that leads to a "signed deal" we pay them a $250 referral fee 30 days post go-live. This seems to be somewhat addressed under ASC and the 605-50. I believe I can book this as an expense vs. reduction of revenue as it is an identifiable benefit (to us) and it is also what we pay employees or any other person/entity that refers in a customer (ie separate from the goods or services purchased by the customer). Thoughts?

Answers

John Cook
Title: Independent Consultant
Company: Consultant
(Independent Consultant, Consultant) |

Based on what you've described, I think you have it right. You are correct that 605-50 (previously EITF 01-9) addresses these transactions, and to be fully correct there is one other criterion that must be met: the vendor can reasonably estimate the fair value of the benefit identified in the first condition (i.e, vendor receives identifiable benefit). The amount of expense to recognize would be the lesser of the amount paid or the fair value of the benefit; in your case, most likely $250 (hard to imagine that the fair value of acquiring a new customer is less than $250).

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