We were informed by a vendor that they plan to give a "rebate" to us based on our 2014 purchase volume. This will be a one time thing that we needed to apply for, which we did in December. We have not been formally approved, and we estimate this amount we will received approx $1.6mm in credit which we can use against our purchases in 2015 (btw our purchases will far exceed $1.6mm in 2015, so no issue of crossing over into 2016 and beyond). So do I book this in 2014 or 2015? I think the argument could be made to book a rebate receivable in 2014 and thus reduce our expense for this vendor in 2014, as we fully expect to receive and we can estimate the amt. However, it is not a legal contract. This is not material at all in the grand scheme of things, but I am not exactly sure what it technically is. Not really a rebate, more a future credit to be used only against future purchases (no cash involved). Not really a gain contingency (but if it was my criteria would be to book only if beyond a reasonable doubt per FAS 5). Has anyone ever come across this? What would the proper term be to call it (rebate, credit, etc?) and what is the rationale as to what year to book it in, along with authoritative guidance. I have never come across something like this! Thanks for any suggestions.
Book in 2014 vs 2015? Rebate to be received
Answers
Based on the facts provided, I believe that this should be recognized in 2014 as that was the year in which the "rebate" was earned.
I would agree. Book when earned, if it can be substantiated.
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Accounting