Accounting: The Language of Business - Vol. 2 (Intermediate: Part 130)

Accounting is a language that dates back thousands of years and has been used in many parts of the world. The earliest evidence of this language comes from Mesopotamian civilizations more than 7,000 years ago.

Fremont College. “History of Accounting.”

 The Mesopotamians kept the earliest records of goods traded and received, and these activities are related to the early record-keeping of the ancient Egyptians and Babylonians. The Mesopotamians used primitive accounting methods, keeping records that detailed transactions involving animals, livestock, and crops (investopedia.com).

Revenue Recognition (Part Q)

by

Charles Lamson 

Special Issues in Revenue Recognition

 We next discuss various special issues in revenue recognition. This post discusses right-to- return sales. Consignment sales, principal agent transactions, bill-and-hold transactions, and channel stuffing will be covered in the next several posts.

 

Right-to-Return Sales

When a company makes a right-to-return sale, it is providing customers with the ability to return a product that has been transferred to them. The seller is obligated to accept the returned product if the buyer chooses to return it. The right of return does not represent a separate performance obligation but rather is a component of variable consideration affecting the transaction price. The entity recognizes the amount of expected returns as a refund liability, which represents its obligation to the customer to stand ready to receive the returned product and refund the customer's consideration (or provide the customer with a credit or a different product). The seller does not recognize revenue for the amount of expected returns until the amounts are no longer subject to the constraint, such as the end of the return. In addition to recording a related liability, the seller must reduce the cost of goods sold by the amount of costs attributable to the products that it expects will be returned. However, the seller should continue to reduce the inventory by the full amount of the cost of sales. The seller recognizes the offset as an asset that it records separately from inventory. Example 8.24 illustrates accounting for a sale with the right of return.

*GORDON, RAEDY, SANNELLA, 2019, INTERMEDIATE ACCOUNTING, 2ND ED., PP. 410-411*

 

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