Question

Explain the cost-recovery method ?of accounting.

Answer 1

Answer: cost recovery method is a method which reports reveRev and cost of goods sold in particular period of sales but it will not recognise profit until the amount received from customer is in excess of cost of goods sold.

According to FASB concept business organisations cannot recognise profit until they are realized, Revenue can be recognised at the point of sale or before sale or after delivery, or as part of special sales transaction.If after delivery of product or service the sales price is not reasonably assured the company may defer the recognising Revenue until cash received.

They are generally two ways for accounting these transactions 1.installment method

2.cost recovery method

Cost recovery method is similar to installment method as both methods recognises cost of goods sold and Revenue in period of sale. But instalment method recognises cash as cash collected from customers the cost recovery method delays recognising profit until cash received from customers is in excess of cost of goods sold.