In short
When customers can return products, the seller recognizes revenue only for the products it expects to keep sold. It records a refund liability for expected returns and an asset for its right to recover the returned products.
Key takeaways
- Expected returns are variable consideration, estimated using the expected value or most likely amount.
- The asset is the products' former carrying amount less expected recovery costs and any loss in value.
- Exchanges for the same type of product in the same condition aren't treated as returns.
Where it's tested
FAR: Revenue Recognition — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A retailer sells 1,000 units at $100 each and expects 4% to be returned based on historical experience. What revenue should be recognized at the point of sale?