Question

Explain a bill-and-hold sale. When is revenue recognized in these situations?

Short answer

A bill-and-hold contract occurs when a buyer isn't ready to take delivery but accepts title and billing. The bill-and-hold system must have a strong basis.

Step-by-step solution

Meaning of Bill-And-Hold Agreement

A bill and hold agreement is a transaction that allows the buyer to pay for an item before it is delivered. It is a sales agreement in which a product vendorbills a consumer upfront for the product but does not send it until later.

Revenue recognized in the bill-and-hold sale

It's called a bill-and-hold deal when a buyer isn't ready to take delivery but accepts title and billing. If all of the following requirements are satisfied, as well as the revenue recognition control rules, revenue is recognized at the moment title passes:

(a) There must be a good justification for the bill-and-hold arrangement.

(b) The product must be designated separately as the customer's property.

(c) The product must be physically transferable to the buyer at this time.

(d) The seller must not be able to utilize or divert the product to another consumer.