Explain the accounting for sales with the right of return.

Customers who use their right of return are frequently entitled to a full or partial refund of their purchase price, as well as a credit for future purchases. Under the new standard, a right of return is no longer a discrete performance criterion, albeit it does have an impact on the transaction price assessed for transferred products.

Companies mainly recognize all of the following when accounting for sales with return rights (and some services that are supplied subject to a refund).

a. Revenue for transferred things in the amount of consideration to which the seller is reasonably assured to be entitled, taking into account products that are expected to be returned or for which allowances are made.

b. An asset that represents the company's right to recover inventory from consumers (along with a cost of goods sold adjustment).

If the firm can't forecast the number of returns, it shouldn't record revenue until it can.