Asked by Tajmia Muhammad on Apr 28, 2024
Verified
When goods are shipped on consignment
A) revenue should be recognized by the manufacturer or seller on delivery.
B) revenue should not be recognized by the manufacturer or seller on delivery.
C) the risk of ownership of the goods is passed on to the distributors.
D) they are always counted in the customer's inventory.
Consignment
An arrangement where goods are left in the possession of another party to sell, but ownership and title remain with the supplier until the goods are sold.
Revenue Recognition
The accounting principle governing when revenue is considered earned and can be recorded in the financial statements.
Risk Of Ownership
The potential for loss resulting from owning an asset, including factors such as depreciation, obsolescence, and market volatility.
- Distinguish between different revenue recognition methods and their applicability under various circumstances including installment sales, consignments, and service revenue.
Verified Answer
SS
Steven StanleyMay 02, 2024
Final Answer :
B
Explanation :
When goods are shipped on consignment, the seller (consignor) retains legal ownership of the goods until they are sold by the consignee. Therefore, revenue should not be recognized by the consignor on delivery since ownership has not been transferred. Instead, revenue should be recognized by the consignor only when the goods are sold by the consignee.
Learning Objectives
- Distinguish between different revenue recognition methods and their applicability under various circumstances including installment sales, consignments, and service revenue.