If a company contracts to purchase goods or services in advance this is called a Purchase commitment, and if the contract is non-cancelable the company must recognize an asset and liability equal to the present value of the future cash payment at the time the contract is signed.

Question

Quizplus · Accepted Answer

A non-cancelable purchase commitment does not require recognition of an asset and liability at the time of signing; it is recognized when the goods or services are received or delivered.

If a Company Contracts to Purchase Goods or Services in Advance