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Revenue recognition (shipment of goods)

 
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Revenue recognition (shipment of goods)
okosling
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02-16-2007, 09:55 PM
At what point should revenue be recognized?

Scenario Goods are invoiced to customers on CIF/CPT/DDU basis (Carriage Paid To Named Place, or Delivered Duty Unpaid at Named Place). Under these terms, goods are at the seller’s risk until they arrive. The seller is responsible for the freight (and insurance, if desired) and title passes to the buyer only on arrival. Up to now, we have always recognized revenue at the point of invoicing & despatch. However, our US masters have told me that US GAAP requires revenue recognition at the point where the risk & title passes to the buyer (which means when the goods arrive).

I checked on internet for guidance on this point, and to my surprise, I found that IFRS and IAS 18 (para.14) also require this, at least in theory!

I would like to hear from other accountants about whether other companies actually do this in practice, i.e. back out invoiced sales, deferring revenue recognition until arrival of goods, for cases where risk & title does not pass from seller to buyer until arrival of goods.

In case anybody raises the question of materiality, I will mention that more than half of our sales are exports (= longer shipment times), and a significant part of our business is machines, of which we sell about 10 per year, so sometimes, the whole month’s machine revenue would be pushed into the next month!
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Revenue recognition (shipment of goods) - by okosling - 02-16-2007, 09:55 PM
[No subject] - by kamranACA - 03-18-2007, 04:33 PM

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