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We charge a 50% deposit on all orders - if the client backs out of the order we keep the 50% deposit.  Do I book the following;

Debit bank for 50% deposit
Credit Deferred Revenue for 50% deposit amount

And record the remainder of the order as a receivable with a credit to deferred revenue (once order has been shipped debit deferred revenue and credit revenue account) or wait until the order has been shipped and then record the receivable and revenue account?

Thanks in advance for any help
in IAS 18 - Revenue by

1 Answer

0 votes

According to the IAS, 18 , Revenue is to be recognized when following conditions are met.

1. Risks and rewards are transferred from the seller to the buyer.

2. Seller has lost the control on the asset.

3. The amount of revenue can be measured reliably.

4. The cost incurred or to be incurred on the transaction can be measured reliably.

5. There is the probable flow of economic benefits towards the entity.

In the above condition, the risks and rewards and the control of the asset remain with the seller until it has been shipped so the seller should not recognize the revenue until the asset is shipped.

by Level 2 Member (3.8k points)