Q5-14RQ - Horngren'S Financial And Managerial Accounting

Question

Under the new revenue recognition standard, how is the sale of inventory recorded?

Step-by-Step Solution

Answer

The sale of inventory is recorded at the net price under the new revenue recognition standard. 

Meaning of Revenue Recognition

In accounting, revenue recognition is one of the GAAP principles that facilitates the business entities to recognize and record their revenues in the books of accounts during the appropriate accounting period. 

Recording of sales under the new revenue recognition standard

According to the new revenue recognition standard, the sale of inventory is recorded at the net amount. Here, the net amount denotes the sales price less any applicable discount. In addition, the sales returns and allowances are also considered while computing the net sales.