Runway Company Essay Example | Topics and Well Written Essays - 750 words

Runway Company - Essay Example The twenty five dollar ($ 25) would be transferred to the existing customer account if and only if the referred new customer purchase item from the company’s website. Moreover, after transferring of twenty five dollars ($ 25) to the account of the existing customer, the money can only be utilized by the customer on the purchasing of new items from the company’s website. The case study pertains to referral credit, in this regard; the document presents a thorough discussion on the said topic. It is pertinent to state that the referral credit should be recorded in the income statement as a marketing expense and this money is spent in an effort to bring in more clients for the company. The company is spending additional money to attain more customers and is expanding its scope. As a marketing strategy, the company is using its existing customer base to bring in more customers by offering them incentives on referring the site to other people. In the long run this additional money spent in the form of referral credits will be beneficial for the company as it will result in an increase in the sales and revenues. It cannot be recorded as a reduction in revenues as this will not provide a clear picture and future increase in customers and revenues cannot be attributed to this money spent. On the other hand, if twenty five dollars ($ 25) referral credit inducement offered to the Runway Discount Company’s customers, the offer can bring in more new customers for the company. And the new customers would be the vital reason for increasing sales, after the sales increment, the increase should explain if twenty five dollars ($ 25) amount is recorded as a marketing expense. Thus, it is suggested that in order to provide a more accurate depiction to the investors, it is advisable to record referral credit as a marketing expense (Gregory, 2011). When would Runway record the $ 25 Referral Credit? It is relevant to know that the Runway Company would record twen ty five dollars ($ 25) referral credit in its books at the time when the new customer referred by an old or existing customer, makes a purchase from Runway Company’s website. When the new customer makes a purchase, the Runway Company is bound to give twenty five dollars ($ 25) referral credit to its customer. In other words twenty five dollars ($ 25) become a liability of the company. However, if an existing customer refers the portal to a third person, not familiar to the website but the person after surfing the site does not make a purchase; the Runway Company will not record any referral credit in its books. When the new customer makes a purchase, twenty five dollars ($ 25) will be recorded as a referral fee in the