Essay on Accounting for Customer Loyalty Programs

663 Words Nov 14th, 2010 3 Pages
Accounting and GAAP recognition of revenue under SAB 101 and SAB 104 for supermarket customer loyalty cards and points issued on airlines frequent flyer programs.
Customer loyalty programs and rewards programs are structured marketing efforts that reward customers who are loyal and regularly buy products and services from the same company. Customer loyalty programs and rewards programs are used to incentivize customers, build customers’ allegiance to the company’s brand and increase sales of the company’s products and services by providing incentives for further purchases.
Another use of customer loyalty programs is to acquire information relating to customers' spending habits which will in turn help to improve the company’s products
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Generally Accepted Accounting Principles GAAP recognition of revenue falls under Staff Accounting Bulletin SAB 101: New Revenue Recognition Guidelines, as well as SAB 104: Revenue Recognition. Under the guidance of SAB 104 and SAB 101 FASB revenue recognition, US GAAP recognition of revenue is linked intrinsically to the completion of the whole earnings process as well as the transfer of the risks and rewards of ownership to the end customer.
Under GAAP recognition of revenue for customer loyalty programs, FASB's Emerging Issues Task Force (EITF) offers guidance with Issue No. 00-22, "Accounting for 'Points' and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the Future". A related EITF Issue (No. 01-9, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)" also provides guidance for GAAP recognition of revenue for customer loyalty programs.
GAAP Recognition of Revenue for Customer Loyalty Programs
GAAP recognition of revenue under SAB 101 and SAB 104 applies to customer loyalty programs too but different accounting practices exist for recognizing revenue:
Incremental Cost - Some business owners recognize an expense for the costs of supplying the goods/services in the future, giving rise to a liability on the balance sheet. In essence, the seller recognizes that it is likely to incur some

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