Confused about income recognition in entrepot trade, how exactly should it be confirmed?
Solved#Entrepot trade#
Our company is involved in entrepot trade business and has been uncertain about income recognition. I know that income recognition for general trade is relatively straightforward, but entrepot trade involves goods not entering the country, and the cash-flow and goods-flow are more complex, sometimes involving multiple parties. I’d like to ask, how exactly should income be recognized in entrepot trade? Are there any specific standards or methods? I hope experienced professionals can share their insights.
Professional consultant answers
Robert ChenYears of service：6Customer Rating：5.0
Customer service consultantConsult
Income recognition in entrepot trade generally follows the provisions of Accounting Standards for Business Enterprises No. 14—Revenue (2017 revision), using the five-step model. The first step is to identify the contract with the customer, clarifying the terms, rights, and obligations with all parties involved. The second step is to identify the separate performance obligations in the contract, such as whether responsibilities include goods transportation, insurance, etc. The third step is to determine the transaction price, considering variable considerations, price discounts, and other factors. The fourth step is to allocate the transaction price to each separate performance obligation, distributing the price reasonably if there are multiple obligations. The fifth step is to recognize revenue when each separate performance obligation is satisfied, such as when goods are delivered or risks are transferred. For example, when control of the goods is transferred to the buyer and payment is expected to be collected, revenue can be recognized. The key to income recognition in entrepot trade lies in accurately assessing the transfer of control and contract fulfillment.
Emily LiuYears of service：10Customer Rating：5.0
Settlement and payment expertConsult
Revenue is typically recognized when the significant risks and rewards of ownership of the goods are transferred to the buyer, such as when the goods are delivered to the carrier for shipment to the buyer, which generally meets this condition.
James LiuYears of service：10Customer Rating：5.0
Foreign trade tax refund consultantConsult
Refer to the contract terms. If the contract specifies a specific point, such as when the goods arrive at the designated location or customs clearance is completed, as the condition for revenue recognition, then follow the contract.
Amanda YangYears of service：3Customer Rating：5.0
Cost control consultantConsult
In entrepot trade, revenue can also be recognized when the company has fulfilled its obligations and payment is highly likely to be received, such as when accurate goods information has been provided to the buyer and the buyer has confirmed acceptance.
Jennifer WangYears of service：4Customer Rating：5.0
Market development consultantConsult
Focus on the transfer of control over the goods. When control is transferred, it means the company has completed its primary obligations, making it appropriate to recognize revenue, such as when the buyer can independently dispose of the goods.
Joseph ZhouYears of service：10Customer Rating：5.0
Senior foreign trade managerConsult
From a cash-flow perspective, revenue can be considered recognized when payment is received or the right to payment is obtained, and all related goods procedures have been completed.
William YangYears of service：5Customer Rating：5.0
International logistics consultantConsult
Generally, it should align with the trade process. For example, when the intermediary resells the goods to the end customer and the transfer is completed during transportation, revenue can be recognized.
Sarah ZhangYears of service：8Customer Rating：5.0
Document expertConsult
If the goods pass quality inspection and the buyer raises no objections, while other conventional conditions (such as contract requirements) are met, revenue can be recognized.
Elizabeth LiYears of service：3Customer Rating：5.0
Compliance and risk managerConsult
If the company has provided the buyer with relevant documents, such as delivery orders, enabling the buyer to take actual control of the goods, revenue can also be recognized.