Accounting for financial losses to maintain quality customer service

Managerial Accounting (2nd Edition)

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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? A company must maintain quality customer service. Sometimes this involves taking a loss so that you do not lose a customer. According to Generally accepted Accounting Principles, these losses must be accounted for on a company’s financial statements. Depending on the type of transaction, they can be classified in more than one way. A company’s income statement shows its profitability during a stated period. It will show revenues, expenses, gains, and losses.
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Unformatted text preview: Sales discounts are not reported as an expense. They should be reported as a reduction of gross sales. Sales or gross sales minus sales discounts and sales returns and sales allowances equals net sales. Sales revenue is recorded at standard sale price; but accounts receivable is recorded at actual sale price. The difference between the standard sale price and actual sale price is the flexible budgeted sales revenue balance. the budget variance shows the difference between the flexible budget (for the actual output) and actual results. Using the variance between the two to analyze performance can increase sales without discounting prices. Managers can use this data to decide what action to take to avoid similar problems in the future....
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