It depends on the shipping agreement.
If the goods are shipped f.o.b (free on board) shipping
point, then legal title of the goods are transferred to be buyer once the goods are shipped so the
seller can record revenues when the items are shipped.
If the goods are shipped f.o.b. destination
, legal title is transferred once the goods are delivered
so the seller has to wait until the products are delivered
before revenues can be recorded.
Revenue Recognition after Delivery
Revenue recognition can be deferred beyond the point of sale in exceptional cases:
collection of revenue is highly uncertain.
The buyer has a right to return the product (over a long period).
Two methods can be used:
The Installment Sales Method.
The Cost Recovery Method.
NOTE: The Installment Method does not necessarily relate to all
where payments are periodically made.
Case 2 (A): Installment Method
Used when there is uncertainty about the collection of revenue.
Gross profit on the sale is deferred until cash is collected.
Over time as cash is collected, profits are realized in proportion to cash received.