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At the time of initial sale, for bookkeeping purpose:

homedream(古风)

Dr. Promotion expense 20
Cr. Coupon liability 20

Then the difficult part is: how much should be reported at reporting date? Assume 100,000 coupons are still outstanding as of the reporting date, face value = $2,000,000, how much should be reported? How the estimate can be made and on what basis?

For example, suppose the past experience shows that 70% is expected to be redeemed by the buyer, coupon liability of $1,400,000 should be reported on financial statements. This estimate should be adjusted at each reporting date on basis of better available information, then an adjusting entry is needed at each reporting date.

At the date of redemption, for example, a sales of $300 which qualifies a coupon redemption,

Dr. Cash 316.40
Dr. Coupon liability 20.00
Cr. Sales 300.00
Cr. HST payable 36.40

(#67355@41)
Last Updated: 2012-8-23

Replies, comments and Discussions:

Accounting and tax quiz: -homedream(古风); 2012-8-16 {465} (#67192@41)
Future Buy Inc. is a large company in the retail business in Ontario and a HST registrant. The company gives out $20 coupon for any purchase over $200 and allows the holder to use it in the next purchase of $100 or more.

In two days, one customer comes into to buy a digital camera at a price $160 before taxes, and present the coupon to use it.

1. How to record the coupons in accounting?
2. How to record the transaction for the sale of the digital camera?

deferred revenue?? -gohomenextyear(jane); 2012-8-16 (#67194@41)

I don't think so. The quiz requires to use your judgement and analytical ability to apply financial statement concepts. -homedream(古风); 2012-8-17 (#67216@41)

Actually I think Jane could be right (at least should be awarded some points, if it is a classroom quiz). first q is about what it is. I think discussion can be elaborated around (1) provision for coupons issued for no consideration. -criss(criss); 2012-8-21 {135} (#67281@41)
(2) customer loyalty programmes - awards supplied by the reporting entity since the coupon is issued as part of the a sales transaction

Yes, Jane should be awarded since s/he realizes this could be related to recognition of liability. -homedream(古风); 2012-8-21 (#67283@41)

Only mentioing liability is too rough. I would say not yet reach the compentency. I am even thinking that discussing deferred rev is a little better than discussing liabilities. What does your profs. solution say. -criss(criss); 2012-8-21 {91} (#67285@41)
I would discuss what it is (liabilities for sure, but whether it is def. rev or accr. exp.)

Not to record when giving out. Record as Discount when customer used it. -jiajiamom(jiajiamom); 2012-8-17 (#67224@41)

Tips: -homedream(古风); 2012-8-17 {293} (#67226@41)
answering the following questions would be helpful: (1)is the coupon a promise due to a past transaction? (2) does the company has any discretion to avoid realizing its "promise"? (3) if the answer to (2) is no, does the realization of the promise results in an outflow of economic benefits?
I think the coupon should be recorded at the time when giving out to the buyer. Reasons: -homedream(古风); 2012-8-21 {492} (#67280@41)
1. Is the coupon a promise to the buyer? – Yes.
2. Does the company have the discretion to avoid it? - No, only the buyer has the discretion to decide whether or not to execute the coupon.
3. So, when the coupon is used by the buyer, there is an outflow of economic benefits – a discount.

Based on definition of liability, a liability is established when the coupon is giving out. (also debit expense would be “promotion”).

next question would be: what is the amount be recorded?

I would use IAS 37's 3 criteria to discuss the provision part (1)present obligation (2) probable economic benefit transfer and (3) reliable estimate -criss(criss); 2012-8-21 (#67282@41)

Good points. -homedream(古风); 2012-8-21 (#67284@41)

顾客花钱购买商品时，按金额计算应给顾客的coupon 借：sales discount for coupon issued 贷：coupon liability. 此时发生的是”或有负债“。等到顾客使用coupon的时候，按照使用的金额冲掉coupon liability。 -stripedcat(虎斑猫); 2012-8-22 {299} (#67301@41)
顾客花钱购买商品时，按金额计算应给顾客的coupon

借：sales discount for coupon issued
贷：coupon liability. 此时发生的是”或有负债“。
等到顾客使用coupon的时候，按照使用的金额冲掉coupon liability。

就是
借：coupon liability
借：cash
贷：sales revenue
贷：HST payable

这样成不？

你少了一个line吧？！ -criss(criss); 2012-8-22 (#67314@41)

I would like to try. Can somebody help to take a look and tell me is it ok? Wish Homedream can post the right answer soon. Thanks all in advance. -minimaya(Blueberry); 2012-8-22 {360} (#67331@41)
1. Assume issued $30 coupon
Dr.Allowable for debtful account $30
Cr. A/R $30

2. To record Sales
Dr. A/R $15
Cr. Sales $15

3. To record receive Cash$10 and a coupon $5 used by customer for the sales of $15
Dr. Cash $10
Dr. Coupon Expenses $5
Cr. A/R $10
Cr. Allowable for debtful account $5

At the time of initial sale, for bookkeeping purpose: -homedream(古风); 2012-8-23 {923} (#67355@41)
Dr. Promotion expense 20
Cr. Coupon liability 20

Then the difficult part is: how much should be reported at reporting date? Assume 100,000 coupons are still outstanding as of the reporting date, face value = $2,000,000, how much should be reported? How the estimate can be made and on what basis?

For example, suppose the past experience shows that 70% is expected to be redeemed by the buyer, coupon liability of $1,400,000 should be reported on financial statements. This estimate should be adjusted at each reporting date on basis of better available information, then an adjusting entry is needed at each reporting date.

At the date of redemption, for example, a sales of $300 which qualifies a coupon redemption,

Dr. Cash 316.40
Dr. Coupon liability 20.00
Cr. Sales 300.00
Cr. HST payable 36.40

thanks a lot home dream! -minimaya(Blueberry); 2012-8-27 (#67415@41)

正解 -scoopydoo(scoopydoo); 2012-8-22 (#67336@41)

@Las Vegas

At the time of initial sale, for bookkeeping purpose:

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