The birth of the Internet in the 1990s led to the creation of a new industry of

Question

The birth of the Internet in the 1990s led to the creation of a new industry of online retailers such as Amazon, Overstock.com, and PCM. Inc, Many of these companies often act as intermediaries between the manufacturer and the customer without ever taking possession of the merchandise sold. Revenue recognition for this type of ch -10 dification: nd relevant tion and ative for a transaction has been controversial. Assume that Overstock.com sold you a product for $200 that cost $150. The company's profit on the trans- action clearly is $50. Should Overstock recognize $200 in revenue and $150 in cost of goods sold (the gross method), or should it recognize only the $50 in gross profit the net method) as commission revenue? Required: 1. Access the FASB Accounting Standards Codification at the FASB website (www.fasb.org). Determine the reporting porting as a or as an specific Codification citation that indicates what an entity assesses to determine whether the nature of its promise is to act as a principal or agent. 2. What indicators does the Codification list that suggest an entity is a principal? Determine the specific Codifi- 3. Using EDGAR 4. Does Google discuss determining whether they should report revenue on a gross versus net basis with respect cation citation. (www.sec.gov), access Google, Inc.'s 2013 io.K. Locate the disclosure note that discusses the company's revenue recognition policy. to any of their products or services? What is the reason Google provides for its choices? Do you agree with Google's reasoning?

Explanation / Answer

Revenue recognition applicable to online retailers in a way that there is a contract between customer and online giant. So in that way Overstock is a agent of the manufacturer and customer. Therefore it recognized the commission earned I.e. 50$ in its books of account as gross profit.

Google report revenue on gross basis for its products and services. The reason being the accounting consistency as mandated by FASB. Yes we do agree with Google as it provides fuller view of operations.

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