Like a cheque you write to a vendor, when you issue a Rewards Certificate it is an obligation you need to record – it’s a liability.
In many instances, Rewards are accumulated by the customer over an extended period of time. For accounting purposes these are not a liability until they are issued for redemption, and must be recorded in DealerVu by entering a Journal Entry that establishes the new liability – offset with an expense.
A percentage of the Rewards issued for redemption will not be claimed by the customer before the expiry date, so a journal entry is done to reduce the liability and refund the expense.
As customers redeem their rewards you no longer have a liability, so you record the reduction in liability during the daily book process. By taking care to record the redemption details you can verify DealerVu and your Rewards system are accurate by reconciling.
By recording issued, redeemed, and expired rewards as they happen you are assured that the financial impact of the Rewards Program is considered in your financial statement. By tracking these transactions in their own accounts you can see the impact on the income statement and balance sheet.
- Create a new Other Current Liability account and name it Accrued – Rewards Cheques Liability. Check the reconcilable box.
- From the Main Screen Select Accounting
- Select Chart of Accounts
- Filter the Client’s Chart of Accounts (select account type and click “refresh”) to the required type of account and ask the Client to identify the account number they would like to use (Take care to maintain the pattern of account numbers already in use [5 digits followed by a dash and letter, for example])
- Select New Account (1) from the toolbar and detail the new account (2) type in the selected Account Number, type in the description, select Other Current Liability, Select the department if the store uses department, Reconcilable (3) should already be selected, and click save (4).
- Create an Expense account and name it Rewards Expenses.
- ***OPTIONAL*** This can be shared between departments by creating a general account, and an account for each department (changing only the department and selecting the parent account each time in the account details – see below). Note that the child accounts follow the client’s pre-existing account numbering conventions (5 digits, dash, two digits, dash, letter)
- Close the account details, and reopen the Parent Account. Select the distribution tab, and then check the Enable Distribution button. Input the distribution amounts. All transactions are pointed to the parent account and the expense will be distributed according to your parent account’s design. Click Save.
- Request the creation of a new Payment type via firstname.lastname@example.org (named: Rewards)
- When the payment type is created it will appear in the open daily book – set the account for the payment type to the liability account in the open Daily Book. (This will become the default on the new daily book when this one is set to pending)
Daily, when cheques are used reduce liability through the daily book (i.e. pointing the transactions to the liability account instead of the bank) and the subsequent journal entry. Best Practice would be to list each cheque on a separate line with the User ID, customer Last name and invoice number. DealerVu’s draft Daily Book JE will list the total of the cheques, Reverse the Rewards Cheque entry, then add each cheque separately. This will allow an easier reconciliation of the system with the Rewards used report for the Rewards system..
- Periodically run a report to calculate rewards issued in a period (the dealership can decide the frequency of liability adjustments: daily, weekly, biweekly, or - at most- monthly) ***the adjustment is ONLY the new rewards issued since the last adjustment – not a cumulative total***
Journal Entries will be used to adjust liability to account for cheques in circulation. When cheques are issued, increase the liability: credit the liability, and debit the expense account.
- Periodically run a report to calculate rewards that have expired in a period (the dealership can decide the frequency of liability adjustments: daily, weekly, biweekly, or - at most- monthly) ***the adjustment is ONLY the rewards expired since the last adjustment – not a cumulative total*** When cheques expire reduce liability: debit liability and credit expense by the value of cheques expired.
The expired rewards adjustment can be incorporated into the same journal entry as new rewards in step 5, but should be recorded on separate lines (the JE will have 4 lines if this is done).
- Monthly, run a report to identify the total of unused cheques in circulation, and another report to identify all of the rewards cheques used. Reconcile this report with the Other Current Liability Account created in step 1 using the reconcile functionality in DealerVu. Using the best practice suggested in recording the Daily Book Journal Entry will allow each used cheque to be checked off against the Rewards Report.