Which of the following statements is correct?

A) Revenue is recognized at the time of shipment when goods are shipped FOB destination.
B) Sales returns and allowances are reported as operating expenses on an income statement.
C) A seller records revenue when title and risks of ownership transfer to the buyer.
D) Sales discounts are reported as cost of sales on an income statement.

Question

Ricky Jacquez · Accepted Answer

Final Answer : C, Explanation :  Revenue should be recognized when the title and risks of ownership have been transferred to the buyer. This ensures that revenue is recognized when the seller has fulfilled the obligations of the sale and the buyer has assumed the risks and rewards of owning the goods. FOB destination means that the seller bears the transportation costs until the goods reach their destination, so revenue should not be recognized until the goods have been delivered to the buyer. Sales returns and allowances, as well as sales discounts, are reductions in revenue and should be reported as contra-revenue accounts on the income statement, not operating expenses or cost of sales.

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