Our customers have the option to enter into a 3 year 0% interest lease with a 3rd party. The leasing company pays us full value of deal up front, however, they charge us a 11% cost (ie the assumed interest). Would this be a reduction of revenue, COGS, a selling expense, interest expense or other? Has anyone dealt with this before? And, believe we have flexibility in terms of wording on the invoice from leasing company.
Accounting for Fee Paid to Leasing Company
Answers
You didn't say when the charge is presented to your company, but since you were not loaned the money, it can't be interest.
You were paid 100% on the sales price, and paid the manufacturer 100% for the item, so I don't believe it should be COGS.
For the same reason, it shouldn't be a reduction of revenue, as this is an option that you provide to your customers, just as taking a credit card.
So, I would say selling expense.
Good question! What does your
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I like to research on my own a bit before I run things by them. My instinct was a selling expense, but, as could be material wanted to check with the group. Believe we'll be billed monthly. We just piloted first deal - so hard to say how it will go. But, no
Thank you.
Just make sure you are following the matching principle. The expense is specific to the sale and may have to find a way to recognize/accrue the 3 month expense when you recognize the sale.
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