Hello, I have a question :)
Say you (accrual basis) have a contract with a client (not specified if they are cash or accrual) to provide them with a maximum of 80 units of product over the course of 12 months for evaluation purposes. Units are to be shipped to the client as they request them
- no minimum number of units are specified, and there is no schedule of deliverables. There's nothing specified about what happens if more or less than 80 units are requested in the 12 month contract period.
The client is not being charged for the units, instead the cost of each unit is going to be deducted as market research expense. The question then is: WHEN, for GAAP purposes, is the expense for each unit deducted, immediately at the start of the contract, as units are shipped, or at some other time?
My guess is they are expensed as they are shipped, but I can't find the specific authority for how to deal with this.
Thanks :)