Intercompany Sales
Occassionaly we come accross companies that
operate several companies and transfer books
among these related companies for resale.
The question arises as to what is the proper
way to account for sales.
Some publishers account for them as normal
sales. This recognizes income at the time
of the stock transfer, even though the inventory
has not been resold to the final consumer.
Others transfer the stock on a consignment
basis. With this method the original publisher
retains title until the stock is sold. This
delays revenue recognition until the books
are sold to the final consumer.
The proper way to account for these transfers
is to treat them as consignment sales.
Why?
- You do not recognize income until the
stock is actually sold to the end user (ie
retailer, wholesaler).
- You minizime your taxable income.
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