Is it revenue or a reduction of an expense? That is the question companies that receive manufacturer’s rebates for purchasing a large quantity of product must answer. Food companies like Sara Lee, Kraft Food, and Nestle give supermarkets special manufacturer’s rebates of up to 45 percent, depending on the quantities purchased.
Some firms recorded these rebates as revenue, and others recorded them as a reduction of the cost until the SEC said that only one way is correct. What, then, is the correct way for supermarkets to record these rebates? Does your answer change net income?