Financial Accounting Standards Board Essay

Runway Discount (Runway), a privately held online retailer, has implemented a new customer referral marketing campaign. The campaign involves incentivizing current customers to refer their friends to Runways website. When a current customer refers someone who makes a purchase on Runways website, the referring customer receives a $25 credit to be utilize to a future purchase. Two important provisions should be highlighted regarding this Refer-a-Friend programThe $25 credit is contingent upon the existing customers referral actually do a purchase The $25 credit is applied to the referring customers future purchase at the time that the referred customer makes a purchaseThe subscriber line purpose of this Refer-a-Friend program is to increase sales and expand Runways customer base by providing incentives for current customers to refer their friends.The first accounting expose associated with Runway Discounts Refer-a-Friend program is identifying how the $25 referral credit should be recorded in Runways income statement. Is this consideration an adjustment of the selling prices of the traffickers products or services, and therefore characterized as a reduction of revenue, or is it a cost incurred by the vendor for assets and services received from the customer, and therefore characterized as a cost or expense? The next significant accounting issue is regarding when Runway should record the $25 referral credit as a indebtedness (a) at the time an existing customer receives the $25 referral credit, or (b) at the time the existing customer actually uses the $25referral credit to make a purchase?In the following sections, we go away discuss the possible accounting treatments under U.S GAAP and IFRS, which relate to these accounting issues facing Runway Discount. Relevant examples will be provided of businesses that offer similar referral incentive programs. We will conclude with our recommendation of how Runway Discount should account for the referral credits it i ssues relating to its Refer-a-Friend program.Applicable Authoritative LiteratureFASB accounting Standards Codification (ASC) 605-50, Revenue Recognition IASC International Accounting Standards (IAS) 18, Revenue RecognitionView as multi-pages