Question

Customer loyalty programs are used to attract and keep customers and when accounting for programs all of the following statements are true, except for

a. a contra sales account is used to show increases in revenues.
b. customer loyalty programs may also be referred to as incentive programs.
c. a liability needs to be estimated.

Answer 1

Customer loyalty programs are used by businesses to attract and retain customers. When accounting for these programs, all of the following statements are true, except for a contra sales account is used to show increases in revenues.

Step-by-step explanation:

Customer loyalty programs are used by businesses to attract and retain customers. When accounting for these programs, all of the following statements are true, except:

1. A contra sales account is used to show increases in revenues. When customers redeem loyalty rewards, it does not result in an increase in revenue as the cost of the reward is already accounted for.
2. Customer loyalty programs may also be referred to as incentive programs. These programs provide incentives to customers to continue purchasing from a particular business.
3. A liability needs to be estimated. Businesses need to estimate the liability associated with unredeemed rewards, as they have an obligation to fulfill these rewards in the future.