Sale of goods and their correlation with international accounting standards

Revenue from the sale of goods should be recognized and recorded in the financial statements when all of the following conditions are met, when the entity has transferred to the buyer the significant risks and rewards of ownership of the goods.

Also when the entity does not retain any involvement in the day-to-day management of the goods sold to the extent usually associated with ownership, nor does it retain effective control over the goods.

The amount involved in the modification can be measured with sufficient reliability, it is probable that the economic benefits arising from the transaction will flow to the entity, and the costs incurred or to be incurred in connection with the transaction can be measured reliably.

The process of assessing when an entity has transferred the significant risks and rewards of ownership to the buyer requires an examination of the circumstances of the transaction. In most cases, the transfer of the risks and rewards of ownership will coincide with the transfer of legal title or the transfer of possession to the buyer.

This is the case in most retail sales. In other cases, on the contrary, the transfer of the risks and rewards of ownership will take place at a different time than the transfer of legal title or the transfer of possession of the goods.