Accrual for Vendor Rebates

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Lasa1
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Joined: 07 Oct 2020, 11:29

Accrual for Vendor Rebates

Post by Lasa1 »

Hi,
I am struggling to determine how to record an accrual for a vendor rebates that will be received at a later stage.

For customer rebates, accounting is clear for me: At the same of the sale I would accrue for rebates as follows:

Dt Sales Reduction (Contra Revenue account in the P&L)
Ct Accrual for Customer rebates (Liability account in the BS).

However for Vendor rebates.... would it be something like :

Dt Accrual for Vendor rebates (Asset account in the BS ??)
Ct Expense (P&L account where the original purchase was recorded)

It looks strange to me to accrue using an asset account but it is also strange to me to debit a liability account….
I have no a real case here , just trying to figure out the accounting of a basic scenario

Thanks in advance
JRSB
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Re: Accrual for Vendor Rebates

Post by JRSB »

I thought it was a bit of a grey area for the 'opposite' side of certain revenue arrangements. So a suitable accounting policy is needed. In your scenario are you already entitled to the rebate as at year end, or projecting forward and expecting to receive a later credit due to volume discounts etc?
Student of IFRS.
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Marek Muc
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Location: Warsaw, Poland

Re: Accrual for Vendor Rebates

Post by Marek Muc »

general offsetting criteria apply:

https://ifrscommunity.com/knowledge-bas ... struments/

how will you settle the rebates? i.e. by paying less for the 'principal' amount, or will you settle them at a later date?
Lasa1
Posts: 31
Joined: 07 Oct 2020, 11:29

Re: Accrual for Vendor Rebates

Post by Lasa1 »

If we purchase more 100’000kg of material in current year, vendor will issue a credit note in the first quarter of the following year for the annual rebate.
I understand that if expectation is that we won’t reach the 100’000kg , we do not need to accrue for the vendor rebate all along the current year but what if we believe we will?
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Marek Muc
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Re: Accrual for Vendor Rebates

Post by Marek Muc »

these are two separate issues, i.e.
1. whether to accrue the rebates:
https://ifrscommunity.com/knowledge-bas ... nd-rebates

2. whether to offset the resulting asset (receivable) and 'principal' payable
https://ifrscommunity.com/knowledge-bas ... struments/
Lasa1
Posts: 31
Joined: 07 Oct 2020, 11:29

Re: Accrual for Vendor Rebates

Post by Lasa1 »

So :
1. We can accrue for vendor rebates and we use a receivable account
2. We cannot offset the receivable and the liability becuase settlement won t occur simmultaneously : Liability is settled during current year based on invoices payment terms and Receivable is settled the 1st quarter of the following year.
Is it correct?
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Marek Muc
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Re: Accrual for Vendor Rebates

Post by Marek Muc »

yes
Lasa1
Posts: 31
Joined: 07 Oct 2020, 11:29

Re: Accrual for Vendor Rebates

Post by Lasa1 »

Thanks!
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