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The Corporate Finance Institute Accounting
Revenue recognition for the sale of goods
For the sale of goods, most of the time, revenue is recognized upon
delivery. This is because, at the time of delivery, all the five criteria are
met. An example of this may include Whole Foods recognizing revenue
upon the sale of groceries to customers.
Revenue recognition at delivery will look like this:
DR Cash or Accounts Receivable
CR Revenue
When revenue is recognized, according to the matching principle,
expenses must also be considered for:
DR Cost of Goods Sold
CR Inventory
Revenue Recognition before & after delivery
For the sale of goods, IFRS standards do not permit revenue recognition
prior to delivery. IFRS does, however, permit revenue recognition after
delivery.
There are situations when there are uncertainties regarding costs
associated with future costs, violating the fifth criteria for revenue
recognition outlined above.
For example, if a company cannot reliably estimate the future warranty
costs on a specific product when this fifth criteria is met, at that point,
revenue may be recognized.
Other reasons for revenue recognition after delivery include situations
where the amount of revenue cannot be reasonably determined (i.e.
contingent sales), inestimable returns, unassured collectability of
accounts receivable, and risks of ownership remaining with the seller
(i.e. consignment sales).
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