Journal Entry for Rebate Received

Rebate is the amount of payment that seller gives back to the buyer within a certain condition. It can be the rewards that seller provides to the buyer.

The company generates profit by selling the goods or services to the customers. One of the methods to increase profit is to increase sales. The profit will increase alongside sales volume. In order to boost the sale, the seller tries many different market strategies and promotions. They will promote brand awareness to expose to new customers. They provide discounts to the customer by reducing prices in order to increase sale volume. One of the strategies is the rebate.

Rebate is the strategy the seller pays back the buyer a certain amount of cash after the sale. There are several types of rebates that the company can use. They offer rebates for the customer who purchases at a certain volume to increase the sale quantity. They also provide rebates to the retailer to can increase sale volume. And the last type of rebate is given to the individual consumer.

For the customer side, it is the amount that they receive from the supplier after the purchase is completed. It is different from trade discounts that suppliers reduce prices at the time of buying. Rebate is the payback amount that the supplier pay after the customer purchase and settle the payment already.

The transaction will reduce the cost of products that customers have purchased. They have to record it as the cost deduction from the purchase items.

Journal Entry for Rebate Received

When the company receives a rebate from the supplier, they will recognize cash received and the decrease in purchase items. It is considered as the price adjustment over the purchase of the asset. The company cannot record it as revenue. The journal entry is debiting cash and credit inventory or fixed assets.

Account	Debit	Credit
Cash	$$$
Inventory/Fixed Assets		$$$

The transaction will reduce the cost of fixed assets or inventory which depends on the nature of purchased items. The company is more likely to receive rebates for highly expensive items.

Example

ABC has purchased a car from the manufacturer, it cost $ 100,000. The supplier provides a cash rebate 10% after the company makes full payment. Please prepare journal entry for the rebate received.

ABC receives a rebate of 10% after purchase and payment is completed. This rebate will reduce the cost of a car from $ 100,000 to $ 90,000 and it will reduce the depreciation expense as well.

When receiving a cash rebate, ABC has to record cash of $ 10,000 and credit fixed assets – car.

Account	Debit	Credit
Cash	10,000
Fixed Assets – Car		10,000