Premiums are prizes, bonuses, awards or samples that you give to (1) induce employees and representatives to sell and (2) induce customers to buy. You may include these items on your invoices with a zero price. If you do, your cash basis P&L does not include the cost of these inventory items. If you have an inventory item on an invoice with a zero price, it does not affect the COGS account on a cash basis Profit and Loss.
This issue will occur if:
When the invoice is paid, the payment is allocated to all of the items on the invoice, based upon the item price.
Now, each inventory item that you give away has a price, and will be allocated a portion of the total payment, and will have its cost recorded to COGS.
Beware that each discount will be treated as a payment and will be allocated across all of the sales items which will add lines to your cash basis reports.
Important: Consult your accountant or State Revenue Department about items you give away.