How does P&G account for trade promotions? Does the accounting conform to accrual accounting concepts? Explain.
How does P&G account for trade promotions? Does the accounting conform to accrual accounting concepts? Explain.
Homework Answers
Consisting primarily of customer pricing allowances, merchandising funds and consumer coupons, trade promotions are offered to customers through various programs.
All sales are recorded net of trade promotion spending. This is recognized as incurred, usually at time of sale. The majority of these arrangements have a term of about one year. Accrual accounting concepts are used when using sales promotions. Accrual accounting is when a company recognizes revenue when it is earned and expenses in the period incurred, no matter when the cash is received. Accruals for these expected payouts are included as accrued marketing and promotion in the accrued and other current liabilities portion in the consolidated balance sheets.
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How does P&G account for trade promotions? Does the accounting conform to accrual accounting concepts? Explain.
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