How do you account for financial losses in order to maintain

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?

Solution

A restaurant that gives free meal to an upset customer or a company ,that gives repeat customers a discount may or may not lead to long term financial losses. Most ,of the time discount and gifts to potential customers lead to positive cash flow for long run.as a managerial accounting these cost of quality are variable in nature and are classified as period cost. Gifts and meals should be deducted from gross income as operating expenses.