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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
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Experience:  Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
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I work in the pharmaceutical industry, and we receive a purchase

Resolved Question:

I work in the pharmaceutical industry, and we receive a purchase volume rebate from our primary wholesaler. Every month, we are notified of the amount of the PVR, which reduces the amount of our payable to them.

My management wants to know what would be the best way to account for this. In the past, they have debited inventory, and credited cost of goods (with the original invoicing increasing inventory net of the rebates.) The other way that I thought we could do it, is to book the invoices at full cost, then debit A/P and credit a rebate income line for the PVR.

In either situation, as I see it, it would yield the same net profit, but the first way would decrease cost of goods by the PVR amount, yielding a higher gross profit, while the second method would have a higher cost of goods, decreasing gross profit, but the rebate income (Other income) would offset the increased cost of goods, yielding the same ending net profit.

Is there another way to handle this situation? Management wants another option.

Thanks for your time and consideration.

- PW
Submitted: 8 months ago.
Category: Finance
Expert:  Megan C replied 8 months ago.

Megan C :

Hello and welcome. My name is XXXXX XXXXX I will be happy to assist you today

Megan C :

If I were keeping track of everything, I would keep the rebate income separate, but have it mapped to cost of goods sold so that when you pull an income statement, the rebate is included in Cost of Goods Sold, but you have visibility and can pull reports which show you how much rebates you have been receiving

Megan C :

Does this make sense? You should have visibility into what rebates you are getting, because you know one day someone will ask for it, and it's easier just to pull a report than to pull all your transactions and weed out the credits for the rebates.

Megan C :

You want the rebate factored into cost of good sold.

Megan C :

Do you have any further questions?

Megan C :

If not, please take a moment to rate my response positive so that I may receive credit for assisting you today

Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 12601
Experience: Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
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