Business Analysis with Microsoft® Excel, Second Edition

Recognizing Revenue at Completion of Production

For certain types of commodities, such as agricultural products and some precious metals, it is best to recognize revenue when production is complete. To recognize revenue when production has been completed, it is necessary to meet the following criteria:

• The product is sold in a market with a reasonably assured selling price.

• The costs of selling and distributing the product are not significant and can be reasonably estimated.

• Production is considered the most critical event in the earning process, not the sale itself.

For example, the most critical event in a wheat farmer's earning process is the harvesting of the grain, not the act of selling the grain. This is because the grain price has already ...