Analysis on Accounting Processing Issues of Customer Reward Points

An analysis of the accounting treatment of customer reward points

The article analyzes several current accounting methods for customer reward points, and points out the differences between the full shortfall income method and the income deferral method. deficiencies, and briefly elaborates on the advantages of the incremental cost accounting treatment method.

Reward points sales are points awarded to customers based on the sales amount when the company sells goods. After accumulating a certain point value, the customer can redeem the points from the company or obtain goods or services provided by a third party. It is not difficult to see that the sales method of returning points for purchases can attract customers to consume again and cultivate customer relationships. It is a marketing activity of the enterprise. The purpose of awarding reward points to customers is to retain customers and maintain market share to maintain profits, promote corporate growth, and win market competition. Typical ones in life are the various frequent flyer reward programs launched by airline companies, the user points reward programs launched by telecommunications companies, and credit card point programs, which stipulate that rewards points can be awarded according to the amount of consumption according to the above plans (? (flight miles and points), customers can use points to purchase air tickets for free (or at a discount), obtain phone bills or exchange goods, stay in hotels, etc.

my country’s current corporate accounting standards do not clearly stipulate the accounting treatment of point sales, so there are no standards to follow in accounting practices, resulting in greater arbitrariness in the accounting treatment of point sales. , most companies that implement reward points do not do accounting processing when granting reward points to customers; when customers redeem reward points, they treat the cost of redeeming goods or services as an expense, and do not do this part of the accounting report at the end of the period. special disclosures.

1. The current main accounting methods for customer reward points

In current practice, there are three main accounting methods for the accounting treatment of customer reward points:

(1) Revenue is recognized based on the full amount of payment or receivable, and the reward points for delivery are not accounted for. When the promise is actually fulfilled, it will be distinguished whether the goods or services are borne by the merchant itself or by a third party. If provided by the merchant itself, no accounting will be done; if provided by a third party, the amount payable to the third party will be recognized as an expense and included in "operating expenses". This approach considers the granting of bonus points to customers as a promotional activity. However, in the sale in which the bonus points are awarded to the customer, the customer is not given a substantial discount, but is actually given when the customer redeems the bonus points. Customer discounts will increase current expenses accordingly and offset current profits and losses.

(2) Income deferral method. According to the provisions of Cai Kuan Han [2008] No. 60, if an enterprise awards reward points to customers while selling products or providing services, the payment for goods or receivables obtained from the sales shall be divided between the income generated from the sale of goods or the provision of services and the reward points. The portion related to the reward points should first be treated as deferred income, and when the customer redeems the reward points or expires, they will be carried forward and included in the current profit and loss. This method can be understood as the points awarded to customers are generated by the sales business and are an individually identifiable element of the transaction itself, representing a right given to the customer. In order to obtain this right, the customer has actually already entered into the initial transaction. Relevant expenses are paid as incurred. The money a customer pays when making an initial transaction is not only to get the goods, but also to get the corresponding points. When the bonus points plan is implemented, the fair value of the points in exchange for the goods or services will be regarded as the fair value of the points. The balance of the payment received by the enterprise or the payment receivable minus the fair value converted from the donated points is recognized as income, and the fair value converted from the donated reward points is recognized as deferred income. When a customer uses redemption, the redeemed points are converted from deferred income to income. If the points held by customers are not redeemed upon expiration, the reward points will expire according to the promotion regulations and these points will be converted into non-operating income.

(3) Incremental cost method, also called estimated liability method, that is, revenue is recognized based on the full amount of payment or receivable, and the cost of providing free goods or services in the future is recognized as an expense, as? Estimated liabilities are reflected in the current period.

When a customer redeems a reward or the redemption period expires, the relevant amount is offset against "estimated liabilities" to reflect the reduction or completion of the liability. This method can be understood as the essence of the points sales plan is just a promotional activity affiliated with the sales business. When a customer pays to purchase a product or service, the revenue recognition conditions stipulated in accounting standards have been met. Based on the estimated points redemption percentage, the incremental cost of the enterprise caused by providing the reward can be estimated, and the incremental cost is recognized as Estimated liabilities are included in selling expenses.

2. Problems in the accounting treatment of customer reward points using the full revenue recognition method and the deferred revenue method

(1) Shortcomings in the full revenue recognition method

1. Does not comply with the accrual basis principle

The recognition, measurement and reporting of enterprise accounting should be based on the accrual basis. When an enterprise sells goods, it recognizes the sales revenue in full based on the full selling price. It does not perform any accounting processing when giving away points. When the customer redeems the goods or services, it will then distinguish whether the goods or services are borne by the enterprise itself or provided by a third party. If it is provided by the enterprise itself, there will be no accounting treatment; if it is provided by a third party, the enterprise's sales expenses will be recognized based on the amount payable to the third party. Obviously, this treatment does not comply with the accrual basis principle.

2. Does not comply with the principle of revenue recognition

It is inconsistent with the principle of revenue recognition to recognize the full amount of revenue when an enterprise sells points. Points sales revenue generally consists of two parts. : One part is the price paid by the customer related to the goods or services; the other part is the price that the customer will exchange for goods or services in the future after receiving points, and the goods or services corresponding to this part of the price will only be provided when certain conditions are met in the future. That is, collect payment first and then provide goods or services. According to the provisions of the revenue recognition standards in the current accounting standards for enterprises, when an enterprise sells goods or provides services, if the goods or services have not yet been provided at the time of sale, although the price has been received or the payment has been obtained, rights, but according to the prudence principle and the principle of substance over form, it cannot be recognized as income, so the points part of the points sales revenue should not be recognized as income.

In this accounting treatment of customer reward points, if the goods or services are provided by the company itself, no accounting treatment will be performed. This will underestimate the income, and the goods or services provided by the company should be recognized at fair value. For revenue, the cost will be carried forward. If the goods or services are provided by a third party, the sales expenses of the enterprise shall be recognized according to the amount payable to the third party. The sales expenses are incurred independently of the sales transaction to realize the sales transaction. Points The amount paid by the third party in the sales business is part of the sale and does not occur independently of the sales transaction. Therefore, such treatment will confuse the concept of sales expenses and inflate expenses.

(2) Inadequacy of revenue deferral method to deal with customer reward points

Accounting Letter [2008] No. 60 stipulates that enterprises grant customer reward points while selling products or providing services. , the payment for goods or receivables obtained from sales should be allocated between the income generated from the sale of goods or the provision of services and the reward points. The part related to the reward points should first be treated as deferred income until the customer redeems the reward points or expires. , it will be carried forward and included in the current profit and loss. As can be seen from the above, the Financial Accounting Letter [2008] No. 60 adopts the revenue deferral method. It can be understood that the points awarded to customers are generated by sales business and are an individually identifiable component element of the transaction itself, representing the points awarded to customers. A right, and in order to obtain this right, the customer has actually paid a fee at the time of the initial transaction. In other words, the money paid by the customer at the initial transaction is not only to obtain the goods, but also to obtain points and obtain corresponding services. The revenue deferral method considers that points are awarded when purchasing goods or services, so the initial sales revenue should be divided into several parts, and each part should be recognized according to separate standards to reflect the essence of the transaction. However, this processing method also has the following shortcomings.

1. It does not comply with the recognition principles of accounting elements

The author believes that the sales of reward points are more complicated. The payment collected or the payment receivable consists of two parts. One part is the payment paid by the customer related to the goods or services. ; The other part is the payment made by the customer related to reward points. The reward obligations corresponding to this part of the payment must be deferred until certain conditions are met, that is, payment comes first and the obligation is provided later. According to the revenue standard, when revenue is recognized from the sale of goods or provision of services, since the relevant reward obligations have not yet been provided at the time of sale, revenue cannot be recognized even though the payment for the goods has been obtained or the right to collect the payment has been obtained. The payment attributable to reward points should be regarded as an estimate. Liability handling.

2. Does not meet the quality requirements of accounting information

The "Accounting Standards for Business Enterprises? Basic Standards" stipulates the quality requirements for accounting information: Enterprises shall conduct accounting confirmation, measurement and reporting of transactions or events. Due caution should be exercised and assets or income should not be overstated or liabilities or expenses understated. The deferred revenue method divides a complete transaction and does not take into account that bonus points are awarded to customers as a complete component of the sales transaction and are valuable; while sales expenses are incurred before the sales transaction in order to realize the sales transaction. occurs independently, there is a difference between the two. Due to the failure to grasp the essence of the transaction and the lack of due prudence in accounting recognition, measurement and reporting, there was a phenomenon of overestimating assets and income and underestimating liabilities and expenses.

Financial Accounting Letter [2008] No. 60 only clarified the accounting treatment of the distribution points stage, and only briefly explained the redemption stage, without distinguishing the subject and method of redemption.

3. Thoughts on the accounting treatment of the incremental cost method for customer reward points

(1) The rationality of the accounting treatment of the incremental cost method for customer reward points

Currently, some argue for an alternative approach to accounting for bonus points awarded to customers? The incremental costing method. The accounting treatment of the incremental cost method is: when an enterprise sells goods or provides services, the full amount of the payment received or the payment receivable is recognized as revenue, and the related costs are recognized at the same time. When the points accumulated by customers are redeemed for rewards, the incremental costs of the enterprise caused by providing the rewards are estimated based on the redemption percentage, and the incremental costs are recognized as estimated liabilities. We can see that treating the reward points plan as a contingency is in line with the essence of the business and reflects the principle of substance over form and the principle of prudence; on the other hand, it reduces the space for companies to use reward points to manipulate profits. It makes the information reflected in the company's accounting statements more consistent with the actual situation and more complete. It also helps users of accounting statements have a preliminary impression of the company's operating costs that will not bring revenue in the future period, and helps users of accounting statements understand and use them. accounting information and improve the quality of accounting information.

(2) Accounting treatment of customer reward points as contingencies

1. Accounting treatment method when giving reward points. When revenue is recognized from the sale of goods or provision of services, the existence of reward points causes an outflow of future economic benefits. If the outflow of economic benefits caused by such reward points meets both conditions for the recognition of contingencies, the outflow caused by the reward points should be The increase in cost of sales is recognized: the performance of the obligation is likely to result in the outflow of economic benefits from the enterprise; the amount of the obligation can be measured reliably. The accounting treatment is: Based on the probability of customers executing the reward points plan in the previous period, the size of the sales volume, and the possible increase in sales costs, it is expected that the consumption reward points plan in this period may cause an increase in the company's future sales costs. The portion recognized is recognized as estimated liabilities. That is, debit "main business cost" and other accounting accounts, credit "estimated liabilities", "reward points" and other accounts, and make corresponding disclosures in the statements; if the increase in costs involved in the reward points does not meet the two requirements for confirmation of contingencies at the same time, If there are certain conditions, the reward points should not be recognized as current liabilities and only need to be disclosed accordingly in the notes to the accounting statements.

2. Accounting treatment method when customers redeem reward points.

In the future, when customers redeem reward points in accordance with the provisions of the reward point plan, the accounting treatment will be to offset estimated liabilities, that is, according to the amount of reward points redeemed by the customer, the "Estimated Liabilities" Reward Points account will be debited, and the "Main Business" will be credited. Cost? account, while carrying forward the corresponding costs and disclosing them in the accounting statements.

For example, on October 1, 2007, a shopping mall stipulated that 10 points would be given for purchases over 100 yuan. The points can be redeemed within one year, and you can get products equal to the points. A customer purchased a leather bag worth 1,000 yuan (excluding VAT). The points are 100 points and the cost of the bag is 600 yuan. It is estimated that the customer will redeem the points in full within the validity period. The customer purchased pants worth RMB 150 (excluding VAT) in March 2008. He used points to deduct RMB 100 and paid the balance in cash. The cost of the pants was RMB 100.

(1) Initial sales in October 2007 (points bonus stage)

Debit: cash on hand 1170

Loan: main business income? Leather bag 1000

Taxes payable? Value-added tax payable (output tax) 170

Debit: sales expenses 100

Credit: estimated liabilities 100

Debit: Main business cost 600

Credit: Inventory goods 600

(2) In March 2008, customers redeem points within the validity period

Estimated liabilities The accounting treatment under the law is:

Debit: Cash on hand 75.5

Estimated liabilities 100

Credit: Main business income? Pants 150

Taxes payable? Value-added tax payable (output tax) 25.5

Debit: main business cost 100

Credit: inventory goods 100

?

References:

[1] Ma Ronggui. A brief analysis of the accounting treatment of customer reward points [J]. Finance and Accounting Guide, Issue 10, 2011.

[2] Jiang Yan. Discussion on the accounting treatment of point sales [J]. Friends of Accounting, Issue 10, 2010.

[3] Hu Xiaofeng, Hu Lifeng. Improvements in the accounting treatment of point sales [J]. Accounting Monthly, mid-January 2011.

[4] Ministry of Finance. Intermediate Accounting Practice [M]. Economic Science Press, 2009 edition. ;