How to show Sales Promotions in accounts

This query is : Resolved

Yatharth Mehta (Querist)
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21 October 2019 If we are transferring the product amount(SP) to consumers bank account for them to purchase the products from marketplace, how do we show these amounts in our accounts? Eg. Transferring via Neft from company account to consumers bank account INR 600 (Product cost) to 400 such buyers. what will these transaction be shown as?

CMA SIVAKUMAR A,ACMA.

CMA SIVAKUMAR A,ACMA. (Expert)
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22 October 2019 Show as promotional expenses

Yatharth Mehta

Yatharth Mehta (Querist)
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22 October 2019 Thank you for your responses.
Is there any limitation if we put this as promotional expense? There will no bill generated for payment made.
And scale and amount of payments won’t be an issue?

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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28 July 2024 **Showing Sales Promotions in Accounts**

When transferring funds for sales promotions directly to consumers’ bank accounts, you should ensure accurate and compliant accounting for these transactions. Here’s how you can manage these entries in your books of accounts:

### 1. **Understanding the Nature of Transactions**

1. **Promotional Payments:**
- **Purpose:** Payments made to consumers for promotions or rebates are intended to incentivize purchases and drive sales.
- **Nature:** These transactions are typically treated as promotional expenses and should be documented correctly to maintain clarity and compliance with accounting standards and tax regulations.

### 2. **Accounting Entries**

1. **Recording the Promotional Expense:**
- **Entry for Payment:**
When you make payments to consumers’ accounts, you should record it as a promotional expense. Here’s a suggested accounting entry:

**Journal Entry for Payment:**
```
Date Account Debit Credit
---- ------- ------ ------
[Date] Promotional Expenses 240,000
Bank Account 240,000
```

**Explanation:**
- **Debit:** `Promotional Expenses` (to record the total amount spent on promotions).
- **Credit:** `Bank Account` (to reflect the cash outflow from the company’s bank account).

2. **Detailing the Transactions:**
- **Breakdown:** If you are making payments to multiple consumers, you should maintain a detailed record of each transaction, including:
- Date of payment
- Amount transferred
- Consumer details
- Purpose of the payment (e.g., promotional discount)
- **Supporting Documents:** Even though no bill is generated, keep records such as bank transfer statements, communication with consumers, or promotional campaign documentation.

### 3. **Tax Implications**

1. **GST Treatment:**
- **GST on Promotional Expenses:** Generally, promotional expenses are not subject to GST as they are not directly related to the sale of goods or services but are rather an incentive.
- **Verification:** Ensure compliance with GST regulations by checking if there are any specific requirements related to promotional expenses in your jurisdiction.

2. **Income Tax:**
- **Tax Deductibility:** Promotional expenses are generally deductible for income tax purposes as long as they are legitimate business expenses and properly documented.
- **Documentation:** Proper documentation and justification for these expenses are essential to support their deductibility in case of an audit.

### 4. **Limitations and Compliance**

1. **Scale and Amount:**
- **No Specific Limitation:** There is no inherent limitation on the scale or amount of promotional expenses, but they must be reasonable, justifiable, and supported by adequate documentation.

2. **Proper Documentation:**
- **Maintain Records:** Keep detailed records of the promotional scheme, including how it was communicated to consumers, the criteria for payments, and any supporting documentation related to the disbursements.

3. **Internal Controls:**
- **Audit Trail:** Ensure that there is a clear audit trail for these transactions. This includes maintaining copies of bank statements, approvals, and any other relevant documentation.

### 5. **Example: Transaction Breakdown**

If you transferred INR 600 to 400 consumers, the total promotional expense is:
```
INR 600 x 400 = INR 240,000
```

Record this as follows:

**Journal Entry Example:**
```
Date Account Debit Credit
---- ------- ------ ------
[Date] Promotional Expenses 240,000
Bank Account 240,000
```

**Supporting Documentation:**
- **Bank Statements:** Showing the transactions.
- **Campaign Records:** Details of the promotional campaign and consumer eligibility.

By following these steps, you will ensure that your promotional expenses are accurately recorded, compliant with accounting standards, and properly documented for any audits or reviews.