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Revenue Recognition by Frank J. Beil

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Continuing Involvement After Delivery

Consignment sales are not sales at all, because the risk of loss continues to be absorbed by the seller, until the “buyer” sells through to the final customer. Therefore, a shipment of goods on consignment does not meet the delivery requirement under the earned criteria for revenue recognition.1 When a contractual agreement between buyer and seller transfers product title, but grants the buyer an unlimited right of return and payment is not due until the products are sold through to the final customer, we have what is called “in-substance” consignment. Accounting guidance lists the following as qualitative guidance in determining if a revenue arrangement is an “in-substance” consignment.2

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