Revenue recognition question

At point of sale, or when reasonably completed (in the case of services, just an FYI). Sale isn't by DEFAULT when the invoice is generated. The POS could be FOB destination, the point at which the customer essentially receives the goods (when title passes). However some products aren't completed all at once. For instance, a magazine subscription... you can only recognize revenue as that product is delivered (monthly subscription whose invoice was for $120/year, you recognize $10/mo in revenue... the remained is held in Unearned Revenue, a liability account with a misleading name :)

Don't automatically associate receipt of payment with revenue recognition. They don't go hand-in-hand. Receipt of payment would relieve a liability if it doesn't also coincide with transfer of title.

-Holly

Holly:

Thanks for the response. Suppose this product is, for example, a small clock. Would revenue in this case be recognized at point of sale or when the clock is sent or some other time?? Thanks again.

Sara

Holly J. Sommer wrote:

Wouldn't this depend on whether the business is on a cash or accrual basis?

Accrual basis, when title transfers. Cash basis, when cash is received :)