Question

How do you account for financial losses in order to maintain quality customer service, for example, a restaurant that gives a free meal to an upset customer or a company that gives repeat customers a discount? From the viewpoint of a management accountant, how would this cost be classified and how would it figure into a company’s financial statements?

Answer 1

Answer: These costs will be classified as sales discounts

Explanation: Sales discounts are discounts given to customers for buying a company's products or special offer given to customers that are regular and loyal to a company's brand. Discounts are also given to attract new customers to a company's product.

Discounts are accounted for under the operational expenses head and are recorded as part of the company's operational expenses.

The effect of discounts are that it reduces the company's net profit but the positive effect is that it can increase the total sales of the company.