Can someone clarify:
Does the product transfer ownership to the customer when it is shipped, or when received? Those points in time may be days apart. Is income recognized when shipped, or once the product (or service) is complete? For example, if a customer buys a new workstation (or some other equipment), maybe the "package" is complete once it arrives and you provide some phone support for setup.
Brian
Hi Chris,
>> Reading the wikipedia page on invoices confirms my understanding of the position of the invoice document. If you want to receive money in advance, a proforma invoice can be used, or an order can state pre-payment is required before shipment will take place.
>>
>> If LSMB could automatically pay invoices for pre-paid orders, that might help, I'd say. Wouldn't it?
>>
>>
> Just to clarify the accounting here: Income is supposed to be recognized once the product has shipped, not before. If you receive a prepayment, that is "unearned income" which affects the balance sheet but not the income statement. Once you have done the work and finished the project, you get to report it as income. This is done by invoicing. Technically you aren't supposed to realize income until right of return has lapsed unless you estimate the portion of returned goods, according to my recollection of FASB/IASB memos.
>
> This is a purely accounting question on this side.Thanks for this additional explanation.
Come to think of it, we could allow invoicing in advance, if the invoice would be posted on "Deferred income" accounts. Shipments would then cause the income to be recognized.
However, this would require everybody to use shipping... An impractical requirement, I'd say.
> So the point is to get to support the workflow Brian describes which is (including accounting steps at the end):
>
> 1. Customer makes order.
> 2. Customer pays for order.
> 3. Goods get shipped
> 4. Income gets realized.Yes, that's indeed the point. Should we start collecting requirements (in terms of workflows) for our to-be-rewritten modules?
Bye,
Erik.
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