Number two is to make confirmation whether delivery has occurred or service has been rendered, which the ownership of the goods has been transferred to the buyer, as well as risks of ownership. If the buyer doesn’t accept the goods, then the goods are still considered to belong to the seller. This brought up the “bill-and-hold” arrangements in which the seller bills the buyer for a purchase but holds the goods for later shipment. In this case, revenue should not be recognized until the seller transferred the goods and the there’s evidence of the buyer taking title to the goods. Layaway sale also been mentioned in the new revenue recognition. A layaway sale is not really a sale because the goods in still in the seller’s custody so revenue cannot be recognize until the goods have been transferred to the buyer. Third, the seller’s price to the buyer is fixed or determinable. At this time, buyer is no longer has the contractual right to terminate the contract and need to pay back for the goods or services. If customer returns is not possible to reasonably estimate, recognizing the sale should be put on hold for more certainty. FASB Statement No.48 provide a few conditions in which a company …show more content…
Altogether, if one these four requirements are not met, revenue should not be recognized. While these criteria are general guidance for revenue recognition in traditional business models, SAB 101 also provides additional guidance on revenue recognition for non-traditional business models such as e-commerce companies that have large percentage of internet transactions. Additional guidance SAB 101 issues are Right of return, Contingent rental income, Layaway programs, Cancellation of termination provisions. SAB 101 stated that the gross method is inappropriate when a company serves as an agent or broker and never takes legal and economic ownership of the goods being sold. In this situation, the entity should use the net basis method to report revenue address in the Emerging Issues Task Force (EITF) No.99-19 as follows: The company does not maintain an inventory of the product being sold, but simply forward orders to a supplier; The company is not primarily responsible for satisfying customer requirements, requests, complaints, and so forth (those requirements are satisfied by the supplier of the goods); the company earns a fixed amount,