{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/705/20/","source":"FASB Accounting Standards Codification, Basic View","usage":"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.","number":"705-20","topic":"705","title":"Accounting for Consideration Received from a Vendor","area":"Expenses","paragraphs":14,"summary":"ASC 705-20 governs how a customer (often a reseller) accounts for cash, credits, coupons, or vouchers received from a vendor. The default rule is that vendor consideration reduces the purchase price of the goods or services acquired (705-20-25-1), unless it is payment for a distinct good or service transferred to the vendor, a reimbursement of specific incremental costs incurred to sell the vendor's products, or reimbursement for the vendor's sales incentives offered directly to consumers. The Subtopic also prescribes systematic and rational recognition of volume/loyalty rebates payable under binding arrangements.","concepts":["consideration received from a vendor","reduction of purchase price","distinct good or service","standalone selling price","specific incremental identifiable cost","manufacturer sales incentives to consumers","volume rebates and refunds","cumulative catch-up adjustment"],"categories":["Recognition","Inventory and PP&E","Revenue","Presentation"],"level":"intermediate","topic_title":"Cost of Sales and Services","sections":[{"number":"00","label":"00 Status","anchor":"00-status","is_sec":false,"groups":[{"block":null,"heading":null,"paragraphs":[{"citation":"705-20-00-1","para":"00-1","html":"
The following table identifies the changes made to this Subtopic.
Paragraph Action Accounting Standards Update Date
Cash Consideration Amended Accounting Standards Update No. 2018-07 06/20/2018
Cash Consideration Added Accounting Standards Update No. 2014-09 05/28/2014
Contract Added Accounting Standards Update No. 2014-09 05/28/2014
Customer Added Accounting Standards Update No. 2014-09 05/28/2014
Probable (2nd def.) Added Accounting Standards Update No. 2014-09 05/28/2014
Reseller Added Accounting Standards Update No. 2014-09 05/28/2014
Revenue Added Accounting Standards Update No. 2014-09 05/28/2014
Standalone Selling Price Added Accounting Standards Update No. 2014-09 05/28/2014
Vendor Added Accounting Standards Update No. 2014-09 05/28/2014
705-20-05-1 Added Accounting Standards Update No. 2014-09 05/28/2014
705-20-25-1 through 25-12
 Added Accounting Standards Update No. 2014-09 05/28/2014
705-20-25-7 Amended Maintenance Update 2020-18 (PDF) 11/25/2020
","snippet":"The following table identifies the changes made to this Subtopic.\nParagraph | Action | Accounting Standards Update | Date |\n| | | |\nCash Consideration | Amended | Accounting Standards Update No. 2018-07 | 06/20/2018 |\nCa…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:02fa811cc94f47592da8c07ecfcb4c0e036eed49ced321a1d1e0cd913dc4129b","downloaded_from":"2026-09-10T00:55:52.101Z","last_downloaded_at":"2026-09-10T00:55:52.101Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479667","source_sha256":"edb402c626256a038a6202d3832ccaa8321872fb567d5efeeccbef21744fe201"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:53bd1f1b67d09b05d92bb78f354ae66a563d034ec63b74bb07a9a2ab3f08f0b2","downloaded_from":"2026-09-10T00:55:52.101Z","last_downloaded_at":"2026-09-10T00:55:52.101Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479667","source_sha256":"edb402c626256a038a6202d3832ccaa8321872fb567d5efeeccbef21744fe201"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1d36b5a412593bca9b3b62d951bf6070b7155dbbb5cf90be6ac3cf2b9c0d5176","downloaded_from":"2026-09-10T00:55:52.101Z","last_downloaded_at":"2026-09-10T00:55:52.101Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479667","source_sha256":"edb402c626256a038a6202d3832ccaa8321872fb567d5efeeccbef21744fe201"}},{"number":"05","label":"05 Overview and Background","anchor":"05-overview-and-background","is_sec":false,"groups":[{"block":null,"heading":null,"paragraphs":[{"citation":"705-20-05-1","para":"05-1","html":"
This Subtopic provides guidance on accounting for consideration received by an entity from a vendor.
","snippet":"This Subtopic provides guidance on accounting for consideration received by an entity from a vendor.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:56a526906a82d13b71387d5a9bea62b44633a74c2b13fa76e6dad58939e606b8","downloaded_from":"2026-09-10T00:55:54.380Z","last_downloaded_at":"2026-09-10T00:55:54.380Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479641","source_sha256":"f8e3642609cf19cbfe3603577a079b9d9f6145ba8760dd2b9843ce64275f9ff6"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6ba05c0da06cd2488cb8ddbea917f695851bb70ea20c027d214a7cb9392cd892","downloaded_from":"2026-09-10T00:55:54.380Z","last_downloaded_at":"2026-09-10T00:55:54.380Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479641","source_sha256":"f8e3642609cf19cbfe3603577a079b9d9f6145ba8760dd2b9843ce64275f9ff6"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f91ab0c4080b878456aa5899c32e3604c7f396cdaeaa6451dab27573926f84b9","downloaded_from":"2026-09-10T00:55:54.380Z","last_downloaded_at":"2026-09-10T00:55:54.380Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479641","source_sha256":"f8e3642609cf19cbfe3603577a079b9d9f6145ba8760dd2b9843ce64275f9ff6"}},{"number":"25","label":"25 Recognition","anchor":"25-recognition","is_sec":false,"groups":[{"block":null,"heading":"Accounting for Consideration Received from a Vendor (Supplier)","paragraphs":[{"citation":"705-20-25-1","para":"25-1","html":"
Consideration from a vendor 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
    ) 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.
","snippet":"Consideration from a vendor 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 includ…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:096cf71cda5bf565ba5c15a908b3d0c810174d45461391292f70d539b86490c0","downloaded_from":"2026-09-10T00:56:00.827Z","last_downloaded_at":"2026-09-10T00:56:00.827Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479608","source_sha256":"42d530aec37a07cc2f40f59e60ee461e24dd37564cc7a15635eab48ef159de4c"}},{"citation":"705-20-25-2","para":"25-2","html":"
If the consideration from a vendor is in exchange for a distinct good or service (see paragraphs
606-10-25-19 through 25-22
) 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 in accordance with Topic 606 on revenue from contracts with customers. If the amount of consideration from the vendor exceeds the standalone selling price 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
.
","snippet":"If the consideration from a vendor is in exchange for a distinct good or service (see paragraphs 606-10-25-19 through 25-22) that an entity transfers to the vendor, then the entity shall account for the sale of the good …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c90c343efc53c6bd622f709a52b66d75a54db68bf7339bfe45cc14eba1a11159","downloaded_from":"2026-09-10T00:56:00.827Z","last_downloaded_at":"2026-09-10T00:56:00.827Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479608","source_sha256":"42d530aec37a07cc2f40f59e60ee461e24dd37564cc7a15635eab48ef159de4c"}},{"citation":"705-20-25-3","para":"25-3","html":"
Cash consideration 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.
","snippet":"Cash consideration 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 c…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ef754a7ac670cccc40dd14c4dc43e3f45c152f6633f48966df0715b1a8e03dd5","downloaded_from":"2026-09-10T00:56:00.827Z","last_downloaded_at":"2026-09-10T00:56:00.827Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479608","source_sha256":"42d530aec37a07cc2f40f59e60ee461e24dd37564cc7a15635eab48ef159de4c"}},{"citation":"705-20-25-4","para":"25-4","html":"
Manufacturers often sell their products to resellers 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).
","snippet":"Manufacturers often sell their products to resellers 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,…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6b5d1452190522755f722cd656dd2f9cb61b199ca64f6b57701eea0a987e51e0","downloaded_from":"2026-09-10T00:56:00.827Z","last_downloaded_at":"2026-09-10T00:56:00.827Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479608","source_sha256":"42d530aec37a07cc2f40f59e60ee461e24dd37564cc7a15635eab48ef159de4c"}},{"citation":"705-20-25-5","para":"25-5","html":"
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.
","snippet":"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…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:8a0bdb19e074bf85f3b719818dce8804c0fdea01660636c3a7bac0aab975cfce","downloaded_from":"2026-09-10T00:56:00.827Z","last_downloaded_at":"2026-09-10T00:56:00.827Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479608","source_sha256":"42d530aec37a07cc2f40f59e60ee461e24dd37564cc7a15635eab48ef159de4c"}},{"citation":"705-20-25-6","para":"25-6","html":"
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.
","snippet":"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 t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a2ae005287171e90ecdbc8def57c7f70ba5ec2e51731babb05b3d443b9ea9f56","downloaded_from":"2026-09-10T00:56:00.827Z","last_downloaded_at":"2026-09-10T00:56:00.827Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479608","source_sha256":"42d530aec37a07cc2f40f59e60ee461e24dd37564cc7a15635eab48ef159de4c"}},{"citation":"705-20-25-7","para":"25-7","html":"
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.
","snippet":"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:\n(a) The incentive can be tendered by a consumer a…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9a243abe2e6093b6dc9daf1b02800c84ebe14b1649ff0c5ee05c5771293522f8","downloaded_from":"2026-09-10T00:56:00.827Z","last_downloaded_at":"2026-09-10T00:56:00.827Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479608","source_sha256":"42d530aec37a07cc2f40f59e60ee461e24dd37564cc7a15635eab48ef159de4c"}},{"citation":"705-20-25-8","para":"25-8","html":"
An entity with sales incentive arrangements that meet all of the criteria described in paragraph 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 from contracts with customers. Sales incentives that do not meet all of the criteria in paragraph 705-20-25-7 shall be accounted for as a reduction of the purchase price of the goods or services acquired from the vendor.
","snippet":"An entity with sales incentive arrangements that meet all of the criteria described in paragraph 705-20-25-7 shall not account for consideration received from a vendor as a reduction of the purchase price of the goods or…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3d4f0e5ee9cbe657a76a8714ece392211ad305da3b2879968172a3514b40851d","downloaded_from":"2026-09-10T00:56:00.827Z","last_downloaded_at":"2026-09-10T00:56:00.827Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479608","source_sha256":"42d530aec37a07cc2f40f59e60ee461e24dd37564cc7a15635eab48ef159de4c"}},{"citation":"705-20-25-9","para":"25-9","html":"
See paragraphs
705-20-25-10 through 25-11
for guidance on the presentation of a rebate pursuant to a binding agreement.
","snippet":"See paragraphs 705-20-25-10 through 25-11 for guidance on the presentation of a rebate pursuant to a binding agreement.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0a86eb4a4ffefcd42083596aa64475d3c6c7158bd0d91d9464fc446a96180412","downloaded_from":"2026-09-10T00:56:00.827Z","last_downloaded_at":"2026-09-10T00:56:00.827Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479608","source_sha256":"42d530aec37a07cc2f40f59e60ee461e24dd37564cc7a15635eab48ef159de4c"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f6258845268ca295a7a8066c77756901e2be06637b1fdc16811a2ace03a227ed","downloaded_from":"2026-09-10T00:56:00.827Z","last_downloaded_at":"2026-09-10T00:56:00.827Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479608","source_sha256":"42d530aec37a07cc2f40f59e60ee461e24dd37564cc7a15635eab48ef159de4c"}},{"block":null,"heading":"Accounting for Certain Consideration Received from a Vendor","paragraphs":[{"citation":"705-20-25-10","para":"25-10","html":"
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 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.
","snippet":"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 specifie…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0bbed43aa3f761b4930aa9847df3e48eb207b41386cc865ae98ebc5093308b91","downloaded_from":"2026-09-10T00:56:00.827Z","last_downloaded_at":"2026-09-10T00:56:00.827Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479608","source_sha256":"42d530aec37a07cc2f40f59e60ee461e24dd37564cc7a15635eab48ef159de4c"}},{"citation":"705-20-25-11","para":"25-11","html":"
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).
","snippet":"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 en…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:01a39e1e854d1b54ba3c8f4232040db241f0f264b46f16685b749ff394cc93a0","downloaded_from":"2026-09-10T00:56:00.827Z","last_downloaded_at":"2026-09-10T00:56:00.827Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479608","source_sha256":"42d530aec37a07cc2f40f59e60ee461e24dd37564cc7a15635eab48ef159de4c"}},{"citation":"705-20-25-12","para":"25-12","html":"
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.
","snippet":"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 th…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2bab0aefc91ad119aa9c6bf07f2d9d430ebaf29998ea1de85856e808b9d8a817","downloaded_from":"2026-09-10T00:56:00.827Z","last_downloaded_at":"2026-09-10T00:56:00.827Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479608","source_sha256":"42d530aec37a07cc2f40f59e60ee461e24dd37564cc7a15635eab48ef159de4c"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:301b5aed5d03d2c3e8328dda8f8b059e7579cae939c41ca97e8cb8cd89302181","downloaded_from":"2026-09-10T00:56:00.827Z","last_downloaded_at":"2026-09-10T00:56:00.827Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479608","source_sha256":"42d530aec37a07cc2f40f59e60ee461e24dd37564cc7a15635eab48ef159de4c"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ab951eca43d7ddaa5f7e09d9a241936ae3024fac45fa52cdfed66ffd5dc15dc4","downloaded_from":"2026-09-10T00:56:00.827Z","last_downloaded_at":"2026-09-10T00:56:00.827Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479608","source_sha256":"42d530aec37a07cc2f40f59e60ee461e24dd37564cc7a15635eab48ef159de4c"}}],"enrichment":{"summary":"ASC 705-20 governs how a customer (often a reseller) accounts for cash, credits, coupons, or vouchers received from a vendor. The default rule is that vendor consideration reduces the purchase price of the goods or services acquired (705-20-25-1), unless it is payment for a distinct good or service transferred to the vendor, a reimbursement of specific incremental costs incurred to sell the vendor's products, or reimbursement for the vendor's sales incentives offered directly to consumers. The Subtopic also prescribes systematic and rational recognition of volume/loyalty rebates payable under binding arrangements.","key_points":["Consideration from a vendor (cash, credits, coupons, vouchers, including from parties that sell goods to the vendor) is accounted for as a reduction of the purchase price of goods or services acquired unless it falls within one of three exceptions: exchange for a distinct good or service, reimbursement of costs to sell the vendor's products, or consideration for manufacturer sales incentives offered to customers (705-20-25-1).","If the consideration is for a distinct good or service (per 606-10-25-19 through 25-22), the entity accounts for it like any other sale under Topic 606, but any excess over the standalone selling price (estimated per 606-10-32-33 through 32-35 if not observable) reduces the purchase price of goods acquired from the vendor (705-20-25-2).","Cash consideration is characterized as a reduction of the related cost only if it reimburses a specific, incremental, identifiable cost incurred in selling the vendor's products; any excess over the cost reimbursed is characterized as a reduction of cost of sales (705-20-25-3).","A vendor's sales incentive offered directly to consumers must meet all four criteria in 705-20-25-7 (consumer-tendered at resellers, direct reimbursement based on face amount, terms not negotiated with other incentive arrangements, and an agency relationship); if met, the reimbursement is not a purchase-price reduction and Topic 606 is considered instead (705-20-25-8).","Sales incentives failing any criterion in 705-20-25-7 are accounted for as a reduction of the purchase price of goods or services acquired from the vendor (705-20-25-8).","A rebate or refund payable under a binding arrangement contingent on cumulative purchase levels or continued customer status is recognized as a reduction of cost of sales by systematic and rational allocation to the underlying transactions if probable and reasonably estimable; otherwise it is recognized as milestones are achieved (705-20-25-10, with impairing factors listed in 705-20-25-11).","Changes in estimated rebates and retroactive vendor changes to a prior offer are changes in estimate recognized through a cumulative catch-up adjustment, with allocation to other accounts such as inventory where applicable (705-20-25-12)."],"categories":["Recognition","Inventory and PP&E","Revenue","Presentation"],"audience_level":"intermediate","student_note":"This is the mirror image of ASC 606-10-32-25's \"consideration payable to a customer\" guidance, and it drives whether vendor allowances hit inventory/COGS or revenue. The most common mistake is recording all vendor cash as revenue or as an immediate COGS credit; the default is a purchase-price reduction that stays in inventory until the goods are sold, and the distinct-good exception only applies up to standalone selling price.","related_topics":["606-10","330","340-40","705-10"],"key_concepts":["consideration received from a vendor","reduction of purchase price","distinct good or service","standalone selling price","specific incremental identifiable cost","manufacturer sales incentives to consumers","volume rebates and refunds","cumulative catch-up 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