Loyalty Points Accounting

Loyalty Points show up as a Payment Type and this is a problem for our accountant. She would like it to show as a discount. How are other accountants recording Loyalty Points?

Loyalty points earned are a liability, just like the airlines record miles earned but not used as a liability. So, when the points are earned, you need to record a credit to the loyalty points liability account, and a debit to an account of your choice. I can’t say if that account should be a contra-revenue account, a cost of sales account, or an expense account. I’ll leave that to others.

Then, when someone uses their points, you credit sales for the amount of the purchase, and debit the loyalty points liability account.

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