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Accounting for cashback

CA.Vishal (service) (86 Points)

01 April 2016

Dear All,

We are an ecommerce start up company & we have the practice of giving cashbacks to our customer on the basis of sales, i have few questions w.r.t that as below.

How the accounting has to be done...At the time of issue of cashback do i need to book cashback as expense or at the time of issue i dont book any entry and only when the cashback is used by the customer while placing order i should book the expense.

Pls when you answer to this questions do quote the AS of which reference you have taken and the interpretation of that AS which supports the answer.

Awaiting quick revert

Thanks & Regards

Vishal Pokharna

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1 Replies

Saliq Ansari (CA_Final Student) (885 Points)
Replied 02 April 2016

This Cash Back expenses is a kind of Promotional Expenses.

The other expense that is similar to this is warranty paying the customer after the sales is madebut the treatement for warranty is done by making appropriate provision (AS-29).

As for the Cash Back Expenses these are those expense which will be incurred when the sales is made. These Exps are certain there is no uncertainty that is case of Warranty.

Hence as per Principle of Prudence & Accrual

It should be recognised in the books as and when it is accrued that is at the time of sale.

If a Customer doesn't use cash back within the period mentioned and his optioin of cash back is lapsed then you could reverse the entry expenses booked earlier as cash back epxs.

Regards

Saliq Ansari