You raise a very interesting subject, @Ron_Thibault.
It may help to consider the fact that, in the situation you described, there is no real expense. When you spend money from a bank account to purchase something, the appropriate expense account is debited and the bank account is credited. But when you provide a free service, there is no account to credit; since debits and credits must match in every transaction, you can’t debit anything.
I can understand your desire to track the value of services you are giving away for promotional purposes. But a service given away isn’t an actual expense like giving away inventory would be. The inventory has an acquisition cost and could presumably be sold to some other customer for a price similar to other sales. Giving away inventory reduces the value of a current asset and must be offset on the books, which debiting a promotional services expense account would do. The same is not true for services.
The fact that other customers may pay you for the service in different circumstances does not mean it has value to the customer involved. Giving it away does not reduce your ability to perform the service for others. Ironically, the fact that you are giving it away may stand as proof that the service has no value in the particular market segment and under the exact circumstances where it is being delivered. It is an inducement to a customer to purchase a product or service, now or in the future. If it’s an inducement for a current purchase, you might think of it simply as a price reduction or discount. If it’s an inducement for future purchases, it really is just an expression of personal good will to a potential customer.
Promotional offsets or discounts can be included in your accounting when sales invoices are issued. The principle to recognize, however, is that the way you handle them must not distort your true net income. So if you want them going into a promotional expense account, their value must first go into an income account. One way to do this is to include the fair value of the service on your sales invoice, but also include a negative amount or discount allocated to a promotional expense account. Because line items on sales invoices are normally credits (usually to income accounts), a negative figure allocated to an expense account will turn into a debit, which is what you want to make the promotional expense account increase. The reported income will go up, but so will reported expenses, and by the same amount. Net income remains unchanged.
But what do you do if a sales invoice won’t be issued? I think most accountants would argue that since there is no expectation of revenue being received, no income should be recognized. One of the usual requirements for recognition of income is that its value be determinable with reasonable certainty. As mentioned above, you have established that this particular service for this particular customer at this particular time has no value. Therefore, you have done nothing to earn income. Another major accounting principle is that expenses should be recorded to match the period during which the income they are related to is recognized (at least for accrual accounting).
And, of course, you can’t just arbitrarily enter expenses when you haven’t spent money. That’s the path to prison.
In summary, if you invoice for the service, you can immediately discount it, with no impact on net income, but a record of its value will be kept. If there is nothing else on the invoice, you wouldn’t even have to give it to the customer, as no account receivable will be created. One slight variation on this approach is to invoice the customer for the service, never deliver the invoice, then write off the account receivable in a manner similar to bad debts. On the other hand, if you are not going to recognize earned income, you can’t record the expense.
Sorry to be so long-winded. But before I quit, let me say you could also just discount the service on the invoice. But that just lowers its price to zero and gives up any ability to track what you’ve done.