# ASC 705-20-25: Cost of Sales and Services — Accounting for Consideration Received from a Vendor — 25 Recognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/705/20/#25-recognition) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T00:56:00.827Z to 2026-09-10T00:56:00.827Z Record version: sha256:ab951eca43d7ddaa5f7e09d9a241936ae3024fac45fa52cdfed66ffd5dc15dc4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 705-20-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/705/20/#25-recognition) SEC content: no #### Accounting for Consideration Received from a Vendor (Supplier) ##### [705-20-25-1](https://asc.understandingaccounting.org/asc/705/20/#705-20-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:56:00.827Z to 2026-09-10T00:56:00.827Z Record version: sha256:096cf71cda5bf565ba5c15a908b3d0c810174d45461391292f70d539b86490c0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Consideration from a [vendor](https://asc.understandingaccounting.org/glossary/v/#vendor "A service provider or product seller, such as a manufacturer, distributor, or reseller.") includes cash amounts that an entity receives or expects to receive from a vendor (or from other parties that sell the goods or services to the vendor). Consideration from a vendor also includes credit or other items (for example, a coupon or voucher) that the entity can apply against amounts owed to the vendor (or to other parties that sell the goods or services to the vendor). The entity shall account for consideration from a vendor as a reduction of the purchase price of the goods or services acquired from the vendor unless the consideration from the vendor is one of the following: 1. a In exchange for a distinct good or service (as described in paragraphs [606-10-25-19 through 25-22](https://asc.understandingaccounting.org/asc/606/10/#606-10-25-19) ) that the entity transfers to the vendor 2. b A reimbursement of costs incurred by the entity to sell the vendor's products 3. c Consideration for sales incentives offered to customers by manufacturers. ##### [705-20-25-2](https://asc.understandingaccounting.org/asc/705/20/#705-20-25-2) Pending content: no Source downloaded (UTC): 2026-09-10T00:56:00.827Z to 2026-09-10T00:56:00.827Z Record version: sha256:c90c343efc53c6bd622f709a52b66d75a54db68bf7339bfe45cc14eba1a11159 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the consideration from a vendor is in exchange for a distinct good or service (see paragraphs [606-10-25-19 through 25-22](https://asc.understandingaccounting.org/asc/606/10/#606-10-25-19) ) that an entity transfers to the vendor, then the entity shall account for the sale of the good or service in the same way that it accounts for other sales to [customers](https://asc.understandingaccounting.org/glossary/c/#customer "A party that has contracted with an entity to obtain goods or services that are an output of the entity's ordinary activities in exchange for consideration.") in accordance with Topic 606 on revenue from contracts with customers. If the amount of consideration from the vendor exceeds the [standalone selling price](https://asc.understandingaccounting.org/glossary/s/#standalone-selling-price "The price at which an entity would sell a promised good or service separately to a customer.") of the distinct good or service that the entity transfers to the vendor, then the entity shall account for such excess as a reduction of the purchase price of any goods or services acquired from the vendor. If the standalone selling price is not directly observable, the entity shall estimate it in accordance with paragraphs [606-10-32-33 through 32-35](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-33) . ##### [705-20-25-3](https://asc.understandingaccounting.org/asc/705/20/#705-20-25-3) Pending content: no Source downloaded (UTC): 2026-09-10T00:56:00.827Z to 2026-09-10T00:56:00.827Z Record version: sha256:ef754a7ac670cccc40dd14c4dc43e3f45c152f6633f48966df0715b1a8e03dd5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Cash consideration](https://asc.understandingaccounting.org/glossary/c/#cash-consideration "Cash payments and credits that the customer can apply against trade amounts owed to the vendor. In addition, as indicated in Section 718-10-25, consideration in the form of share-based payment awards is recognized in the same period or periods and in the same manner (that is, capitalize versus expense) as if the entity had paid cash for the goods or services instead of paying with or using the share-based payment awards. Accordingly, guidance with respect to cash consideration is applicable to consideration that consists of equity instruments.") represents a reimbursement of costs incurred by the entity to sell the vendor's products and shall be characterized as a reduction of that cost when recognized in the entity's income statement if the cash consideration represents a reimbursement of a specific, incremental, identifiable cost incurred by the entity in selling the vendor's products or services. If the amount of cash consideration paid by the vendor exceeds the cost being reimbursed, that excess amount shall be characterized in the entity's income statement as a reduction of cost of sales when recognized in the entity's income statement. ##### [705-20-25-4](https://asc.understandingaccounting.org/asc/705/20/#705-20-25-4) Pending content: no Source downloaded (UTC): 2026-09-10T00:56:00.827Z to 2026-09-10T00:56:00.827Z Record version: sha256:6b5d1452190522755f722cd656dd2f9cb61b199ca64f6b57701eea0a987e51e0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Manufacturers often sell their products to [resellers](https://asc.understandingaccounting.org/glossary/r/#reseller "Any entity that purchases another vendor's products for resale, regardless of whether that entity is a distributor or wholesaler, a retailer, or other type of reseller.") who then sell those products to consumers or other end users. In some cases, manufacturers will offer sales discounts and incentives directly to consumers—for example, rebates or coupons—in order to stimulate consumer demand for their products. Because the reseller has direct contact with the consumer, the reseller may agree to accept, at the point of sale to the consumer, the manufacturer's incentives that are tendered by the consumer (for example, honoring manufacturer's coupons as a reduction to the price paid by consumers and then seeking reimbursement from the manufacturer). In other instances, the consumer purchases the product from the reseller but deals directly with the manufacturer related to the manufacturer's incentive or discount (for example, a mail-in rebate). ##### [705-20-25-5](https://asc.understandingaccounting.org/asc/705/20/#705-20-25-5) Pending content: no Source downloaded (UTC): 2026-09-10T00:56:00.827Z to 2026-09-10T00:56:00.827Z Record version: sha256:8a0bdb19e074bf85f3b719818dce8804c0fdea01660636c3a7bac0aab975cfce Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Although the reseller often benefits from the vendor's direct-to-consumer incentives as a result of increased sales volume, the reseller generally has no control over which consumers or consumer groups participate in the incentive programs. Because the manufacturer reimburses the reseller for the value of the discount provided to the consumer, the reseller's gross margin on the product is the same regardless of whether or not the consumer purchases the product with the manufacturer's incentive. ##### [705-20-25-6](https://asc.understandingaccounting.org/asc/705/20/#705-20-25-6) Pending content: no Source downloaded (UTC): 2026-09-10T00:56:00.827Z to 2026-09-10T00:56:00.827Z Record version: sha256:a2ae005287171e90ecdbc8def57c7f70ba5ec2e51731babb05b3d443b9ea9f56 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The issue is whether consideration received by a reseller from a vendor that is a reimbursement by the vendor for honoring the vendor's sales incentives offered directly to consumers shall be recorded as a reduction of the cost of the reseller's purchases from the vendor and, therefore, characterized as a reduction of cost of sales under the guidance in paragraph [705-20-25-1](https://asc.understandingaccounting.org/asc/705/20/#705-20-25-1). ##### [705-20-25-7](https://asc.understandingaccounting.org/asc/705/20/#705-20-25-7) Pending content: no Source downloaded (UTC): 2026-09-10T00:56:00.827Z to 2026-09-10T00:56:00.827Z Record version: sha256:9a243abe2e6093b6dc9daf1b02800c84ebe14b1649ff0c5ee05c5771293522f8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For purposes of this guidance, the phrase _vendor's sales incentive offered directly to consumers_ is limited to a vendor's incentive that meets all the following criteria: 1. a The incentive can be tendered by a consumer at resellers that accept manufacturer's incentives in partial payment of the price charged by the reseller for the vendor's product. 2. b The reseller receives a direct reimbursement from the vendor (or a clearinghouse authorized by the vendor) based on the face amount of the incentive. 3. c Terms of reimbursement to the reseller for the vendor's sales incentive offered to the consumer must not be influenced by or negotiated in conjunction with any other incentive arrangements between the vendor and the reseller but, rather, may be determined only by the terms of the incentive offered to consumers. 4. d The reseller is subject to an agency relationship with the vendor, whether expressed or implied, in the sales incentive transaction between the vendor and the consumer. ##### [705-20-25-8](https://asc.understandingaccounting.org/asc/705/20/#705-20-25-8) Pending content: no Source downloaded (UTC): 2026-09-10T00:56:00.827Z to 2026-09-10T00:56:00.827Z Record version: sha256:3d4f0e5ee9cbe657a76a8714ece392211ad305da3b2879968172a3514b40851d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity with sales incentive arrangements that meet all of the criteria described in paragraph [705-20-25-7](https://asc.understandingaccounting.org/asc/705/20/#705-20-25-7) shall not account for consideration received from a vendor as a reduction of the purchase price of the goods or services acquired from the vendor and shall consider the guidance in Topic 606 on [revenue](https://asc.understandingaccounting.org/glossary/r/#revenue "Inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations.") from [contracts](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") with [customers](https://asc.understandingaccounting.org/glossary/c/#customer "A party that has contracted with an entity to obtain goods or services that are an output of the entity's ordinary activities in exchange for consideration."). Sales incentives that do not meet all of the criteria in paragraph [705-20-25-7](https://asc.understandingaccounting.org/asc/705/20/#705-20-25-7) shall be accounted for as a reduction of the purchase price of the goods or services acquired from the vendor. ##### [705-20-25-9](https://asc.understandingaccounting.org/asc/705/20/#705-20-25-9) Pending content: no Source downloaded (UTC): 2026-09-10T00:56:00.827Z to 2026-09-10T00:56:00.827Z Record version: sha256:0a86eb4a4ffefcd42083596aa64475d3c6c7158bd0d91d9464fc446a96180412 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See paragraphs [705-20-25-10 through 25-11](https://asc.understandingaccounting.org/asc/705/20/#705-20-25-10) for guidance on the presentation of a rebate pursuant to a binding agreement. #### Accounting for Certain Consideration Received from a Vendor ##### [705-20-25-10](https://asc.understandingaccounting.org/asc/705/20/#705-20-25-10) Pending content: no Source downloaded (UTC): 2026-09-10T00:56:00.827Z to 2026-09-10T00:56:00.827Z Record version: sha256:0bbed43aa3f761b4930aa9847df3e48eb207b41386cc865ae98ebc5093308b91 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A rebate or refund of a specified amount of cash consideration that is payable pursuant to a binding arrangement only if the entity completes a specified cumulative level of purchases or remains a customer for a specified time period shall be recognized as a reduction of the cost of sales based on a systematic and rational allocation of the cash consideration offered to each of the underlying transactions that results in progress by the entity toward earning the rebate or refund provided the amounts are [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur.") and can be reasonably estimated. If the rebate or refund is not probable and cannot be reasonably estimated, it shall be recognized as the milestones are achieved. ##### [705-20-25-11](https://asc.understandingaccounting.org/asc/705/20/#705-20-25-11) Pending content: no Source downloaded (UTC): 2026-09-10T00:56:00.827Z to 2026-09-10T00:56:00.827Z Record version: sha256:01a39e1e854d1b54ba3c8f4232040db241f0f264b46f16685b749ff394cc93a0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The ability to make a reasonable estimate of the amount of future cash rebates or refunds depends on many factors and circumstances that will vary from case to case. However, any of the following factors may impair an entity's ability to determine whether the rebate or refund is probable and can be reasonably estimated: 1. a The rebate or refund relates to purchases that will occur over a relatively long period. 2. b There is an absence of historical experience with similar products or the inability to apply such experience because of changing circumstances. 3. c Significant adjustments to expected cash rebates or refunds have been necessary in the past. 4. d The product is susceptible to significant external factors (for example, technological obsolescence or changes in demand). ##### [705-20-25-12](https://asc.understandingaccounting.org/asc/705/20/#705-20-25-12) Pending content: no Source downloaded (UTC): 2026-09-10T00:56:00.827Z to 2026-09-10T00:56:00.827Z Record version: sha256:2bab0aefc91ad119aa9c6bf07f2d9d430ebaf29998ea1de85856e808b9d8a817 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Changes in the estimated amount of cash rebates or refunds and retroactive changes by a vendor to a previous offer (an increase or a decrease in the rebate amount that is applied retroactively) are changes in estimate that shall be recognized using a cumulative catch-up adjustment. That is, the entity would adjust the cumulative balance of its rebate recognized to the revised cumulative estimate immediately. Entities shall consider whether any portion of the cumulative effect adjustment affects other accounts (inventory, for example), in which case only a portion of that adjustment would be reflected in the income statement.