Employees at your company disagree about the accounting for sales returns.

Memo to Client

Employees at your company disagree about the accounting for sales returns. The sales manager believes that granting more generous return provisions can give the company a competitive edge and increase sales revenue. The controller cautions that, depending on the terms granted, loose return provisions might lead to non-GAAP revenue recognition. The company CFO would like you to research the issue to provide an authoritative answer.

(a)What is the authoritative literature addressing revenue recognition when right of return exists?

(b)What is meant by “right of return”? “Bill and hold”?

(c)Describe the accounting when there is a right of return.

(d)When goods are sold on a bill-and-hold basis, what conditions must be met to recognize revenue upon receipt of the order?

Consider the sales manager’s position and the CFOs position.

Present both sides and come to a consensus as to the best position. Defend your decision.


Answer Preview……………..

In Financial accounting, there are various conditions that lessees and lessors have to follow. However, according to the FASB codification system codification research case, some differences exist between the classification of the same on the Right of Return and the leases under the GAAP. FASB Codification on the Right of Return. It is apparent that the recognition of revenue can only happen after the deal materializes. This is after the transfer of the material from the seller to the customer has happened. According to the FASB website, all the Companies don’t have the rights to recognize revenue until the transfer of the materials to the customers have materialized. It happens that even the Company…………..

APA 397 words

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