How should income from entrepot trade be recognized? Come and offer some suggestions!
Solved#Entrepot trade#
Our company has recently started to get involved in the entrepot trade business and is a bit confused about income recognition. Entrepot trade is not like ordinary trade where goods are sold directly. The goods do not pass through our domestic market but are directly shipped from the supplier to the final customer. In this case, when should the income be recognized? Should it be based on the signing of the contract or the delivery of the goods to the final customer? Or are there other recognition standards? I hope friends who are knowledgeable in this area can explain it in detail.
Professional consultant answers
Andrew HuangYears of service：7Customer Rating：5.0
Supply chain optimization expertConsult
In entrepot trade, income recognition usually follows the provisions in Accounting Standards for Business Enterprises No. 14 - Revenue (Revised in 2017) and adopts the five-step model to recognize income.
First, identify the contract entered into with the customer. The contract needs to meet conditions such as having commercial substance. Second, identify the individual performance obligations in the contract, such as providing entrepot trade goods delivery services. Then, determine the transaction price, that is, the amount of income stipulated in the entrepot trade contract. Furthermore, allocate the transaction price to each individual performance obligation. Finally, recognize income when each individual performance obligation has been fulfilled.
Generally speaking, it is more reasonable to recognize income when the control of the goods is transferred to the final customer, such as when the goods have been delivered to the location designated by the final customer and the risks and rewards have been transferred. This can accurately reflect the operating results of the enterprise.
Amanda YangYears of service：3Customer Rating：5.0
Cost control consultantConsult
Generally, income is recognized when the goods are delivered to the final customer and the risks and rewards are transferred, which can ensure the authenticity of income recognition. If the goods are not delivered, even if the contract has been signed, the risks are still on one's own side, and it is not appropriate to recognize income.
Sarah ZhangYears of service：8Customer Rating：5.0
Document expertConsult
It also depends on the contract terms. If the contract clearly specifies a certain specific event as the income recognition node, such as the customer's acceptance as qualified, then it shall be in accordance with the contract. However, generally, delivery and risk transfer are mainly considered.
Jennifer WangYears of service：4Customer Rating：5.0
Market development consultantConsult
Attention should be paid to the retention of relevant evidence, such as transportation documents, customer signature records, etc. These are crucial for determining the time of income recognition and are also convenient for subsequent audit and other inspections.
William YangYears of service：5Customer Rating：5.0
International logistics consultantConsult
Industry practices can be referred to. Most enterprises engaged in the same type of entrepot trade recognize income when the control of the goods is transferred. We can do the same to avoid making mistakes easily.
Joseph ZhouYears of service：10Customer Rating：5.0
Senior foreign trade managerConsult
If there are quality assurance clauses and other factors that affect the transfer of risks and rewards, a comprehensive assessment should be made. It is not enough to just look at the delivery. Only when the quality is okay can the risks be completely transferred.
Elizabeth LiYears of service：3Customer Rating：5.0
Compliance and risk managerConsult
The finance and business departments should communicate more. The business department is clear about the actual transaction process, and the finance department judges the time of income recognition according to the standards based on these. Only with good cooperation can income be accurately recognized.
Michelle ChenYears of service：3Customer Rating：5.0
Business coordination consultantConsult
Consider the tax implications. Different times of income recognition may affect the time of tax liability. Therefore, both accounting standards and tax laws should be taken into account to avoid tax risks.
David LiYears of service：6Customer Rating：5.0
Senior customs declaration consultantConsult
If there are return clauses, the possibility of returns should be estimated and income should be recognized within a reasonable range. The parts that may be returned should not all be recognized as income.