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Classifying Considerations Given by a Vendor to a Customer

Where Do They Belong on the Income Statement?

Companies often provide cash payments and other forms of consideration to their customers for a variety of reasons. The income statement classification of this consideration by both vendors and customers has traditionally been subject to significant judgment, because relevant guidance was absent from U.S. GAAP. Vendors may classify the consideration provided as either a cost (or expense) or a revenue reduction, depending on the circumstances, when recognized in the income statement. Customers may classify the consideration received as a reduction of cost of sales (or the specific cost incurred) or as revenue, depending on the circumstances, when ...

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