Supplier bonuses, supplier rebates and so on, are more common than you might imagine and getting them for your company and for your purchases is all down to your negotiation skills.

Regardless however, we would like to focus on treating such items on your financial statements. 

Effectively, when we talk about supplier rebates and discounts, those are normally given right away with each purchase and as such, you can deduct them from the original base price for the item in a way that your cost price on the balance sheet already would include the discount given. It’s not recognized as some sort of income on your income statement, but merely as a reduction of the original cost price on the balance sheet. For an example, if you buy something with its original price as 10 (as shown on the supplier invoice), but a reduced price for you is 9, then this 9 is your cost price. Your payable to the supplier is also 9.

However, if it’s supplier bonuses we encounter, those are paid less often, say quarterly or even once a year. Thus it’s more difficult to account for their impact on the statements. Are they all deduction of expenses on the income statement or are they part of inventory?

The answer lies within the goods. Once the goods are all sold at the time the bonus is considered and recognized, it’s all part of your cost of goods sold (reducing the cost), however if part of the goods are not sold, this remaining part is measured against the total amount initially bought and the percentage in stock is applied to the bonus amount. Thus you’d find out how much of this bonus should be applied to current stock and how much to the cost of goods sold for the period.