Both Chris and Erik have made good
points regarding the accounting aspect of this issue.
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
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On 05/27/2013 03:56 AM, Erik Huelsmann wrote:
>> 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
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
> 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
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