How To Show Proof Accounting Wise Of Free Bonus I Give To My Customers (credit, accountant)

[doodlemagic]

okay so I run an ecommerce business. i do a free bonus gift with every order. Its a small item costs me about 0.30 cents but has a higher perceived value and my customers love it. I have to buy these bonuses in one chunk or lot of 100 and then give one to each of my customers and sometimes more for larger orders.

Last year my accountants said because I dont have proof I gave htem away the money I spent on them is basically considered as income.

How can I account for giving away a free bonus. Btw, I use quickbooks if that matters. Also how do I show proof this was a bonus?

[Wartrace]

You either misunderstood what they told you or you need a new accountant.

There is no way an expense = revenue. What I would do is set up a "promotional item" expense account to record this item.

The easiest way to handle this is to record it as a non-inventory item using a "promotional expense" account. When you make a purchase you credit cash and debit the promotional expense account. If you want to track this item as inventory make it a "Non-inventory item" setting up the cost as .30 cents and the selling price as "0.00". Make sure you set the expense account to promotional expense.

You do not have to "show proof" it was a bonus. All you have to do is not record any revenue from the "sale". It is just a promotional expense.

[oregonwoodsmoke]

I'd have it listed under "promotional expense", which I list with the advertising expenses.

Not that the IRS is ever going to care for proof that you bought 1000 pens to give away and then really gave them away. If nothing else, they are going to allow that purchase as office supplies, and not ever think they were for your own personal recreational use. So they aren't going to question it.

On the other hand, that 10 million dollar yacht listed as promotional expense is going to take some fancy explaining on your part. It might be a legitimate promotional expense, but expect to have to very carefully prove it.