Prepared by

Coby Harmon
University of California, Santa Barbara
Westmont College
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 LEARNING OBJECTIVE 3
Accounting for Revenue Apply the five-step process to
major revenue recognition
Recognition Issues issues.

 Sales returns and allowances

 Repurchase agreements
 Bill and hold
 Principal-agent relationships
 Consignments
 Warranties
 Non-refundable upfront fees

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 Principal-Agent Relationships
 Principal’s performance obligation is to provide goods or
perform services for a customer.
 Agent’s performance obligation is to arrange for principal to
provide goods or services to a customer.
 Examples:
► Preferred Travel Company (agent) facilitates the booking
of cruise excursions by finding customers for Regency
Cruise Company (principal).
► Priceline (USA) (agent) facilitates the sale of various
services such as car rentals at Hertz (USA) (principal).
 Revenue for agent is amount of commission received.

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 Consignments

 Manufacturers (or wholesalers) deliver goods but retain

title to the goods until they are sold.
 Consignor (manufacturer or wholesaler) ships
merchandise to the consignee (dealer), who is to act as
an agent for the consignor in selling the merchandise.
 Consignor makes a profit on the sale.
► Carries merchandise as inventory.
 Consignee makes a commission on the sale.

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 ILLUSTRATION 18.23
Consignments Recognition—Sales on
Consignment

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 ILLUSTRATION 18.23

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 ILLUSTRATION 18.23

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 ILLUSTRATION 18.23

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 ILLUSTRATION 18.25
Consignments Recognition—Sales on
Consignment

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