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When is the right time to recognize revenue?

Released Date: Feb 01,2021 Article Source: HUANZE
At present, we adopt the accrual basis in accounting, so in general, the income can be recognized when three conditions are met:

At present, we adopt the accrual basis in accounting, so in general, when the need to meet3Revenue can be recognized under the following conditions:

1.When the firm has transferred the main risks and rewards of the ownership of goods to the buyer

2.At the same time, the enterprise does not retain the right to continue management, nor does it implement effective control over the sold goods

3.And the amount of income can be measured reliably

4.The associated economic benefits are likely to flow to companies

5. Relevant costs incurred or to be incurred can be measured reliably

However, there are some special sales methods that have different sales confirmation times, such as:

one.The most common consignment sales can be divided into:

(1(Non-exclusive sales shall be regarded as buyout commission: the entrusting party shall recognize the income upon receipt of the commission list

The trustee recognizes revenue when goods are sold 

(2Commission sales: The principal shall recognize the revenue upon receipt of the commission sales statement 

The agent recognizes revenue when it is entitled to collect commission charges 

two.Goods to be installed or inspected are divided into:

(1If the installer is important: Recognize merchandise revenue upon completion of installation or inspection 

(2If security procedures are not important, revenue is recognized when goods are shipped 

 three. When goods with the right of return are sold:

(1If the possibility of return cannot be reasonably estimated, the income shall be recognized upon the expiration of the period of return 

(2) can reasonably estimate the possibility of return, recognize the revenue when the goods are shipped, and estimate the estimated liabilities

Enterprises need to determine the correct time of income according to their actual sales situation. Otherwise, it will cause the enterprise to recognize the revenue error, and then affect the enterprise this year's profit.


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