Trading partners, such as distributors and retailers, purchase physical goods and sell them to their customers. Manufacturers may offer rebate programs to incentivize partners to purchase more and increase profits. However, the distributor or retailer can only recognize the rebate earnings once the corresponding inventory is sold to the customer.
Given the large volume of products that distributors and retailers handle, it is crucial for them to properly track their rebates as they are earned, rather than at the time of purchase.
That’s why Enable has developed an Inventory Rebate Accounting feature, a software solution that helps accurately calculate rebate in stock and rebate release which are key values for the balance sheet and P&L statements at the time of sale, instead of the time of purchase.
As an operator in the auto parts distribution industry during the month of November, you have an existing rebate contract with a parts manufacturer that requires you to spend $20 million in the year to receive a 5% rebate. By November, you have reached the target spending amount and hold $3 million worth of inventory that will all earn the 5% rebate by year-end. As a result, you should value your inventory at a net amount of $2.85 million in your financial statements and recognize the rebate of $150,000 as the products are sold in the following year.
Having strong accounting controls is critical in ensuring that a business's financial picture is accurately and reliably represented. In this case, proper tracking and recognition of the rebate is essential in reflecting the true financial performance and position of the company.
Enable’s software can utilize the same mechanisms for inventory rebate accounting as those for standard trading program. By inputting the necessary data, the module can calculate two essential values:
For Inventory Rebate Accounting calculations to be performed, the following inputs are necessary:
Both rebate in stock and rebate release calculations require the loading of purchases, transfers and inventory position. Rebate release is calculated using the change in rebate in stock, rebate value of transfers and year to date rebate earnings from all purchases.
Managing Inventory Rebate Accounting can be a complex and error-prone task, but utilizing software can provide numerous benefits. Here are some of the top advantages to consider:
Main features of Inventory Rebate Accounting include:
For a deeper dive into Inventory Rebate Accounting check out our latest blogs:
If you are interested in learning more about this module, please reach out to us today for a demo!