Question

In: Accounting

Explain a sound control over revenue recognition in the process of making credit sales for a...

Explain a sound control over revenue recognition in the process of making credit sales for a manufacturing company.

Expert Solution

Control over recognition of credit sales for a manufacturing company :-

1. Any credit sales there must be transfer of title of goods, there should be no cash proceeds received by the seller

2. There should be a Credit agreement between the seller and buyer. This credit agreement may be in form of written or oral.

3. Before recognising a Credit sale, should be some criteria to be fulfilled by the both seller and buyer :-

A. Seller has to transfer the title of goods to the buyer

B. Buyer has to take the ownership and in some circumstances where has to take possession of the goods also.

C. Buyer and seller has to be agreed to a mutual terms and conditions regarding the credit provided by the seller to the buyer.

D. Terms and conditions include mode of payment, time of payment any discounts or interest, any other appropriate terms and conditions.

E. In a credit sale also the seller has to issue invoice when the buyer has to accept the invoice.

F. This accepted invoice will act as an evidence for the the credit sale happened between buyer and seller. if there is any written agreement between the buyer and seller regarding this credit sale then that agreement will also act as an evidence for the credit sale.

If all the above specified activities are done properly by both the seller and buyer then the seller can recognise credit sale.

The management of the the cellular organisation has to verify each and every of the above provided things before recognising a Credit sale.

Proper accounting has to be then regarding a Credit sale which includes creation of a debtor account and recognising the sale.

The verification and maintenance of all the ever provided evidences and process of a credit sale will be the control on recognising of credit sale by a manufacturing company.

These are all the information required to solve the above given question.

if there is any clarification required regarding the above provided answer, please mention them in comment box.

I hope, all the above mentioned information and explanations are useful and helpful to you.

Thank you.

ekkarill92 answered 2 years ago

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