Asked by Lianna Moricee on May 27, 2024
Verified
The most important criteria related to revenue recognition when the right of return exists is that the amount of future returns can be reasonably estimated.
Right of Return
A policy that allows customers to return purchased goods within a specific period for a refund, exchange, or credit.
Revenue Recognition
The accounting principle detailing the specific conditions under which revenue is recognized and recorded.
Reasonably Estimated
A concept that pertains to the feasibility of approximating a figure or amount in the absence of precise or complete information, often used in accrual accounting.
- Recognize the criteria for revenue recognition when right of return exists or when sales are subject to significant future uncertainties.
Verified Answer
RS
Rhyme SpitterMay 31, 2024
Final Answer :
True
Explanation :
When the right of return exists, revenue cannot be recognized until the potential return of goods is estimated and accounted for in the financial statements. The estimation should be done with a high level of accuracy and reliability to ensure that the financial statements reflect the realizable value of goods sold. Therefore, the amount of future returns must be reasonably estimated for proper revenue recognition.
Learning Objectives
- Recognize the criteria for revenue recognition when right of return exists or when sales are subject to significant future uncertainties.