[Anonymous]

Company A ordered $10,000 of merchandise on December 1, Year 1. Company B did not have the goods in stock until January 2, Year 2. Goods were shipped FOB Shipping and Company A received them on January 31, year 2.

Q: So the Receivable is NOT recorded in Year 1, even though the sale was made in Year 1?

The answer saids the Receivable should be recorded in Year 2.

Why?

[tulip]

I looked at it from an inventory perspective. If Company B could not recognize the inventory until Year 2, then the matching principle would tell me that the good cannot be sold until it was a good available for sale. To get it all lined up, the sale could not be recognized until there was a COGS to net down the gross revenue.

Of course, I have never worked as an accountant in the retail industry (or anything with COGS for that matter), so that's just my attempt to reason it out.

BEC - 10/18/2010 - 79
FAR - 10/28/2010 - 82
AUD - 11/04/2010 - 73; 02/18/2011 - 86 - IT'S OVER!!!!!!
REG - 11/21/2010 - 83

[kb24]

Receivable isn't recorded until revenue is recognized which isn't until sale is complete. Sale is complete when exchange has taken place and earnings process is virtually complete. Exchange doesn't take place until after 1/1/year 2 so that's when revenue can be recognized.

Whether or not the merchandise is in stock or not isn't the deciding factor – it's when can revenue be recognized. Even if the firm had had the merchandise in stock in year 1 but didn't ship it out until after 1/1/year 2, the receivable wouldn't be recorded until after 1/1/year 2.

FAR 4/1/11 - 89
AUD 4/15/11 - 85
REG 4/29/11 - 80
BEC 5/13/11 - 85

[Author]

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