Free Essays, Term Papers, Research Papers at Anti Essays

July 8, 2009
FAR # 2 AC 313

Page 960, Chapter 18; Professional Research: Financial Accounting and Reporting


To address the issues of revenue recognition, our company needs to look at The Financial Accounting Standards Board (FASB) Codification 605-15. The topic covered in section 605 has to do with revenue recognition, and sub-section 15 deals with products. Since our company wants to know how changing our returns policy will affect how we recognize revenue, we need to look at paragraph 605-15-25-1, which explains the conditions that must be met for our company to recognize revenue at the time of the sales. If the conditions are met sub-section 25-2, explains that any costs or losses that may be expected in connection with any return may be accrued in accordance with Subtopic 450-20. Sub-section 25-3 addresses the issue of making reasonable estimates on the amount of returns. There are many factors that could impair a company’s ability to make reasonable estimates of returns, and these are addressed in sub-section 23-4.

Right of Return: the option of a purchaser to give goods back to the seller for full credit.
The buyer's right to return merchandise precludes revenue recognition by the seller at the time of sale unless all of the following conditions are met:
(1) The selling price is determinable.
(2) The buyer's obligation to pay is not contingent on resale of the product
(3) The buyer must pay for item if lost
(4) The acquisition by buyer has economic substance.
(5) Future performance by the seller is not required for resale by buyer.
(6) Future returns may be reasonably estimated.
If these conditions are not satisfied, revenue and related expenses must be deferred until the conditions are met or the right of return has expired.

Some of the factors that may impair the ability to make a...