DESCRIBE ACCOUNTING ISSUES FOR REVENUE RECOGNITION AT POINT OF SALE.

Expert Solution

Revenue should be recognized if we satisfy some predetermined conditions at the time of sale upon which revenue is measured and recognized. eg. transfer of the right to use and ownership to other at the time of sale. but the problem arises when some conditions attached to it. which are follows

1) Sales with the right to return: in this case, there is a right with the purchaser to return the goods if it does not fit in with his expectations within the stipulated time. eg, goods sold on Amazon with 15 days return policy.

2) Sales of goods on approval basis: some time goods are sent to the buyer with a clause that he can either keep it or can return it. eg, homogenous goods sent to the dealer in case of or original goods are not in stock on approval basis.

3) Principal-Agent relationship: in this case agent buys and sells on behalf of principle but the actual bills made in the name of original buyer instead of the agent. so when goods are sent to the then revenue is not recognized but when the agent sells that goods than revenue are recognized.

4) Sales with extended payment term: In this case goods are sold to the buyer with an extended payment term than normal at some higher price. this type of transaction is generally made with the buyer having good credit record but have some financial problem at current. the extra price charge is generally in nature of interest for the lag of payment period.

ekkarill92 answered 1 year ago

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