Gosse Limited produces lawnmowers, which are sold mainly in hardware stores located in Western Canada.The company manufactures the lawnmowers and then sells them to wholesalers who distribute them to the various hardware stores.The mowers cost $80 to manufacture and are sold for $100 to the wholesalers.Gosse's credit terms require payment within 30 days, and the company has never had a problem with collection.When should Gosse recognize revenue?

Question

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According to the revenue recognition principle, revenue should be recognized when goods are delivered or services are rendered. In this case, revenue should be recognized when the lawnmowers are shipped to the wholesaler as this is the point at which control of the goods is transferred to the customer. Option A is incorrect because a wholesaler placing an order does not represent a completed sale. Option B is incorrect because the manufacturing process does not represent a completed sale. Option D is incorrect because collecting cash is simply the receipt of payment for a sale that has already been recognized.

Gosse Limited Produces Lawnmowers, Which Are Sold Mainly in Hardware