Comment by fourseventy

7 hours ago

That doesn't make any sense because the revenue is already booked for the sale which has nothing to do with when the delivery truck actually arrives.

8 comments

fourseventy

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dragonwriter  6 hours ago

If it is cash based accounting, revenue and expenses are booked when the money changes hands.

If it is accrual-based acocunting, it takes place when the event legal triggering the change of ownership of goods in the transaction takes place, which depends on the shipping terms, which could be anywhere from when it is available for the buyer’s transport agent to pick up at the seller’s facility (EXW) to when it is delivered, unloaded, and at the buyers door (DDP) or any of a variety of places in between (FOB Origin, FOB Destination, and a bunch of other potential shipping terms with their own rules on when ownership—and responsibility—transfer from seller to buyer.)

storyinmemo  7 hours ago

It's got to be one of these:

FOB Shipping Point (or Origin): Responsibility transfers to the buyer as soon as the goods leave the seller's premises. You book it when it leaves your loading dock.

FOB Destination: The seller retains risk and costs until the goods reach the buyer’s location.

The sale doesn't happen until the asset transfer occurs. Before that any cash you get from the sale is balanced by the liability to actually produce the good or refund the money. Or more likely you don't get any cash but can't record the bill as accounts receivable. It's not receivable until the transfer point is crossed.

  • gzread  6 hours ago

    You can account a transaction that's been placed but not fulfilled. I think when someone orders $15m of goods, you can immediately book $15m accounts receivable (asset) and $15m goods owed (liability) as soon as you have the expectation it will happen. If the transaction falls through, you delete them.

    • jeremyjh  3 hours ago

      Under GAAP you cannot recognize revenue before the service is delivered or product is shipped. You can accrue revenue that is earned but not yet paid (if you are paid on Net 30, for example), but even if pre-paid you have to book that as deferred revenue, which is a liability (until you ship).

egl2020  6 hours ago

Accounts receivable, revenue, and cash are related, but separate, accounting items.