Predicting Income

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT member discussion
Take a business who has a warehouse full of stock and occasionally sells some, delivers it to them and then invoices them.

What about if they sell a load of it to someone but it is to much for them to store, so the business stores it for them. It gets delivered to the customer as they need it. Would it be ok to put all the revenue through when it is sold or should only the revenue go through as it is delivered?

Thanks.
Adrian

PS if anyone can give a relevant standard, particularly international, there is bonus "glory" for them.

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Predicting Income

    I think as long as the stock is booked out at the same time as the sale as a whole lot, the revenue should go through all at once. As the accounts do not need to reflect the actual physical movement of the goods.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Predicting Income

    It seems fairly straight forward, the thing that is bugging me is that the costs of holding that stock have yet to go through.

    The thing thats even worse is, the business may not actually store all the stock they may just order it in as the customer requests it. Even though its all been invoiced.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Predicting Income

    Not sure of the relevant UK standard but the international standard is IAS 18 revenue recognition. Don't take my word for it as every time I did for my exam questions I got it wrong!! My take would be that you haven't transferred complete control over the goods and you cannot measure all costs associated with the goods (as you are still storing them) so I would say that you can't recognise the revenue until the goods leave the building. No doubt someone would say that I'm wrong and if you don't follow international standards - the UK standards may say different.

    http://www.iasplus.com/standard/ias18.htm

    Hope this helps
    Annette
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Predicting Income

    I would agree with Annette, you have not fulfilled the contract ie: you have not delivered all the goods therefore you can only recognise the revenue for the amount of stock that has been delivered.

    Terry
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Predicting Income

    Thanks for all your replies.

    I'm going back to uni in a few weeks to do my final year in accounting and finance, so I hope your up for some more discussion as I may be drawing on all your talents alot! Its going to be very hard work covering tax, finance, complex group accounts - the lot!

    Thanks again
    Adrian
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Predicting Income

    Good luck Lincs - it will all be worthwhile in the end :D

    Claudia

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