How to Deal with Rebates in Accounting

Sales rebates are treated as reductions to sales.

In regard to sales, rebates are either a partial refund to the customer or a reduction to the sum that the customer owes to the business. In either case, rebates are treated as reductions to gross sales revenues. Number of products sold multiplied by the prices at which those products were sold is equal to the business's gross sales revenues. Subsequent to rebates and other sales deductions, such as returns, discounts and gross sales revenues, becomes net sales revenues. Net sales revenues plus additional sources of revenue is equal to the business's total revenues for the period, which is equal to the business's net income once all expenses incurred are deducted from that figure.

Instructions

1. Record each rebate. Which accounts are affected depends on the nature of the transaction in question. For example, if a business offered a $20 rebate on a $100 product and the customer purchased the product in cash, that is recorded as $80 increase to cash, $20 increase to sales rebate and $100 increase in sales revenue. In contrast, if the customer paid in credit and did not receive the rebate until later, the business records the initial sales as $100 increase to both its accounts receivable and sales revenue for the period. Once the rebate is offered, that is recorded as $20 increase to sales rebate and a corresponding decrease to accounts receivable.

2. Calculate the sum of all rebates offered for the period. Using the same example as above, if the business sold 200 units in total and offered $20 rebates on all of them, that business has incurred $4,000 in sales rebates for the period.

3. Deduct sales rebates and other returns, discounts and allowances from gross sales revenue to produce net sales revenues. For example, the above business's gross sales revenue would have been $20,000. Assuming that it had no other deductions from sales other than the rebates, its net sales revenue is $16,000.

References

• Deloitte: Summaries of International Financial Reporting Standardsncial Statements
• AccountingCoach: Multiple-Step Income Statement
• AccountingCoach: Net Sales