When selling food or beverage product into retail or other distribution channels, customer discounts and promotions might lead to increased sales and new market penetration, but they can also wreak havoc when it comes to revenue recognition and classification in a company's financial statements.
Many middle-market food, beverage, and consumer package good processors are asking the question, "How and when do I account for customer incentive transactions?"
Unfortunately, there isn’t a simple rule of thumb to follow. While sales are typically recorded net of incentives (such as trade discounts, price allowances, coupons, slotting fees, and cooperative advertising), the complexity of the underlying contractual arrangements and the associated accounting guidance often leads to inconsistencies in how and when middle-market processors report these transactions in their financial statements.