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An example of Revenue Recognition

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Company X sells its products to dealers who sell it to customers .Dealers allow up to 90 days to pay. These terms allow dealers to hold large inventory. By the end of the year, Company X needs to increase its current ratio and decrease its debt-to-equity ratio . If Company x ship extra inventory to dealers, it will increase sales and AR.

Should these extra shipments be accounted for as sales or as consigned inventory?

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Solution Summary

This solution offers assistance with an example of revenue recognition and how it follows the rule of conservatism.

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The revenue recognition follows the rule of conservatism i.e. revenues are recognized only when there are certain to reasonable extent. In this case, as the dealers are holding this extra invenory and it ...

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