USA Sould I Classify this as Revenue or a Reduction of Costs...

[I_Am_Tony]

My company's Selling Department currently provides some products for free to our resellers (a third party that sales our products) as a tool to help them sell more products. My company's Selling Department wants to reduce their costs, so they have proposed to stop “giving” all the parts away. Instead, they would like to maybe give some away free and then charge the reseller at or below cost for the additional parts ordered.

Selling wants to classify these revenues as a reduction to their cost. I am thinking that since we sell the products in question, that this would need to be classified as revenue. If the accounting rules dictate this to be revenue, then this process would reduce our margins.

Any thoughts?

Thanks for reading!

 

[smallbushelp]

It sounds like your operating margins are already lower than normal because you are giving product away. Charging any amount at this point could only improve the margin. But then your accounting system is not really clear based on what you have detailed above.

If your company is selling the products in question, how is "giving away" something booked? GAAP does not allow for the offsetting of expenses with income. If your company needs some consultation on its accounting procedures, I would be happy to help.