Wally's World Revenue Transaction Inquiry
Will Wally’s World record revenue for this transaction on its current year-end December 31st income statement?
Based on the data provided, will Wally’s World record revenue for the transaction made with Chase Liquidators on December 23rd in their current year-end income statement on December 31st?
Answer:
No, until the goods arrive at the customer, no income is recorded for things shipped FOB destination. Up until it reaches Chevy, Wally shouldn't record any revenue associated with these transactions.
Wally’s World will not be recording revenue for the transaction with Chase Liquidators on December 23rd in their current year-end income statement on December 31st. This is because the shipment is still in transit and has not reached its destination yet. In accounting, revenue is recognized when goods or services are delivered to the customer and the performance obligations have been fulfilled.
In the case of FOB (Free on Board) destination, the ownership of the goods does not change until they reach their destination. Wally’s World, as the seller, has not fulfilled their performance obligations until the goods reach Chase Liquidators. Therefore, no revenue should be recorded until the goods are delivered.
Understanding the terms of FOB destination is crucial in determining when revenue should be recognized in accounting. It's important to differentiate between FOB shipping point and FOB destination, as they involve who pays for shipment and when ownership of the goods transfers from the seller to the customer.