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A reporting entity might make payments directly to its customer, or make payments to another party that purchases the reporting entity’s goods or services from its customer (that is, a “customer’s customer” within the distribution chain), as illustrated in Figure RR 4-1.
Figure RR 4-1
Example of a payment to a customer’s customer in the distribution chain
Payments made by a reporting entity to its customer’s customer are assessed and accounted for the same as those paid directly to the reporting entity’s customer if those parties receiving the payments are purchasing the reporting entity’s goods and services.
Example RR 4-28 illustrates an arrangement with a payment made by a reporting entity to its reseller’s customer.
Example RR 4-28

Consideration payable to customers – payment to reseller's customer
ElectronicsCo sells televisions to Retailer that Retailer sells to end customers. ElectronicsCo runs a promotion during which it will pay a rebate to end customers that purchase a television from Retailer.
How should ElectronicsCo account for the rebate payment to the end customer?
Analysis
ElectronicsCo should account for the rebate in the same manner as if it were paid directly to the Retailer. Payments to a customer’s customer within the distribution chain are accounted for in the same way as payments to a customer under the revenue standard.

In certain arrangements, reporting entities provide cash incentives to end consumers that are not their direct customers and do not purchase the reporting entities’ goods or services within the distribution chain, as depicted in Figure RR 4-2.
Figure RR 4-2
Example of a payment to an end consumer that does not purchase the reporting entity’s goods or services
Management must first identify whether the end consumer is the reporting entity’s customer under the revenue standard. This assessment requires judgment. Management should also consider whether a payment to an end consumer is provided on behalf of the reporting entity’s customer (for example, the merchant in Figure RR 4-2). A promise to make a payment on a customer’s behalf could either be explicitly stated in the contract with the customer or implied based on the reporting entity’s customary business practices, published policies, or specific statements (see RR 3.6.2). If a reporting entity makes a payment to an end consumer on behalf of its customer, the payment would be treated the same as a payment made directly to the customer. Refer to Revenue TRG Memo No. 37 and the related meeting minutes in Revenue TRG Memo No. 44 for further discussion of this topic. Example RR 4-29 illustrates an arrangement with a payment made by an agent to an end consumer.
Example RR 4-29

Consideration payable to customers – agent’s payment to end consumer
TravelCo sells airline tickets to end consumers on behalf of Airline. TravelCo concludes that it is acting as an agent in the airline ticket sale transactions (refer to RR 10 for further discussion on principal versus agent considerations). TravelCo offers a $10 coupon to end consumers in order to increase the volume of airline ticket sales on which it earns a commission.
How should TravelCo account for the coupons offered to end consumers?
Analysis
TravelCo must identify its customer (or customers) in order to determine whether the coupons represent consideration payable to a customer. The coupons represent consideration payable to a customer if (1) TravelCo determines the end consumers are its customers, or (2) TravelCo determines the end consumers are not its customers, but it is making the payment on behalf of Airline (its customer). TravelCo should consider as part of this assessment whether there is an implied promise that it will provide coupons to the end consumer on Airline’s behalf (for example, coupons offered as part of a promotion specific to Airline). If the coupons represent consideration payable to a customer, TravelCo would record the coupons as a reduction of its agency commission as it does not receive a distinct good or service in exchange for the payment (see RR 4.6.1). Conversely, the coupons would generally be recorded as a marketing expense if the coupons do not represent consideration payable to a customer.
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