![]() ![]() ![]() ![]() It applies to companies that sell their goods on credits to the customers.The cost recovery method is utilized when there is an improbability of receiving the cost of the sales.When to Use the Cost Recovery MethodĬost recovery method would be applicable to any of the situations given in the following: One of the types of revenue recognition is cost recovery. In revenue recognition, revenue is recorded when it has been earned and when it can be guaranteed to be paid. Revenue recognition is one of the key processes in accrual accounting and is a generally accepted accounting principle that identifies when income is converted into revenue. Click here for free trial What is the Cost Recovery Method?Ĭost recovery method is a revenue recognition method in accounting in which a business recognizes an income from a sale transaction only when the cost element of the sale has been collected from the customer in cash.Īs soon as the payment recovers the cost of the product, the seller records the remaining cash receipts (if any) as the income.Įssentially, using this technique of revenue recognition raises the question of why would a seller even have any kind of business with such a purchaser who poses uncertainty regarding the payment.
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