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Financial losses due to maintaining quality customer service

How do you account for financial losses in order to maintain quality customer service, for example, a restaurant that gives a free meal to an upset customer or a company that gives repeat customers a discount? From the viewpoint of a management accountant, how would this cost be classified and how would it figure into a company's financial statements?

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First, when we speak of losses, we usually speak of something worthless or ruined. That is, something that has no future value and so must be removed from the asset list on the financial statements. However, the financial statements do not reveal "intangible" assets -- those attributes that help the business but cannot be owned or bought. The policy or practice of offering services or goods to a disgruntled employee when something goes wrong or the habit of giving discounts to repeat customers is intended to build intangible assets, specifically, loyalty and reputation.

What would happen if the company did not give away free items to a disgruntled customer. They talk about their horrible experience all night to their family or roommates. They post it on Facebook. They tweet it. It is word-of-mouth marketing taking your reputation down with it in a hurry. Imagine it another way. The customer get a cold meal. Instead of the waitress saying "sorry" and losing the tip, the manager comes over with a hot meal as ordered and ...

Solution Summary

Your tutorial is 600 words and discusses the main reason for giving away services or goods to unhappy customers or giving returning customers discounts. The response indicates that these actions are not really losses and why. There are no references as this discussion is based on the expert experiences of the OTA.