19 May 2012
The cost of product distributed for free and not associated with any specific sale transaction should be classified as an expense according to the Company’s policy which would generally be either marketing expense or cost of sales.
Cost of Goods Sold / Marketing Cost (Dr) To Inventory (Cr) - at cost of production.
Relevant Guidance from US GAAP: Revenues from the sales of products, services, and other products should be separately disclosed on the face of the income statement. Costs relating to each type of revenue similarly should be reported separately on the face of the income statement. [Regulation S-X Article 5-03]
If the sales incentive is a free product or service at time of sale, the cost should be classified as an expense (cost of sales) by the vendor [EITF 01-09 para.10].
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