Is it revenue or a reduction of an expense? That is the question companies that receive manufacturer’s rebates for purchasing a large quantity of product must answer. Food companies like Sara Lee, Kraft Foods, and Nestlé give supermarkets special manufacturer’s rebates of up to 45 percent, depending on the quantities purchased. Some firms were recording these rebates as revenue, whereas others were recording them as a reduction of the cost until the SEC said that only one way is correct. What, then, is the correct way for supermarkets to record these rebates? Would your answer change net income?

Interpreting Financial Reports Interpreting a Bank’s Financial Statements