Slotting fees are an industry practice in which food product manufacturers pay retailers such as supermarkets for shelving their products in their various store locations. This provides the manufacturer the right to certain shelf space for a given period of time. To record and present slotting agreements in financial statements, these slotting expenses must be accounted for according to generally accepted accounting principles.

Retail Industry Practice

Retailers such as grocery stores charge product manufacturing companies slotting fees for the right to display and sell their respective products on its retail shelf space. These fees serve various purposes, such as to help cover the fixed costs of the store, to allocate prime retail shelf space and to help reduce the retailer's risk of new product failure. This is not without some controversy, since not all producer's can afford slotting fees for the broad distribution of their products. However, slotting fees are somewhat analogous to rent, in which the retailer is the landlord of shelf space and the producer's product is the tenant of that space for a period of time.

Intangible Asset

When a product manufacturer pays a retailer a slotting fee that applies to multiple periods, it has an intangible asset on its books similar to prepaid rent. Like other intangible assets, a slotting fee does not last forever, and under GAAP it must be allocated over the periods to which the slotting fee applies. If the slotting fee only applies to a particular accounting period, however, it should be combined with the current sales total rather than listed as a separate expense.

Amortization Period

Under GAAP, the matching principle requires that expenses be applied to the accounting periods to which they are accrued or otherwise relate to income. To properly match the upfront cost of a slotting fee to its respective periods, it should be ratably amortized over the applicable time period of the slotting agreement. For example, if a two-year slotting fee is paid in early January, half of the slotting fee is applied to year one, and the other half is applied to year two.

Cost of Sales

Historically, product manufacturers lumped retail slotting fees in with other marketing expenses such as advertising and corporate branding. However, accounting regulators now require that slotting fees be treated as a cost of sales, instead of a type of marketing expense. Under GAAP guidelines, slotting fees serve as a reduction of net revenue and are distinct from marketing expenses on the income statement.