large auto manufacturers sells large fleets of vehicle to auto rental companies,

Question

large auto manufacturers sells large fleets of vehicle to auto rental companies, such hertz, suppose hertz is negotiating with the auto manufacturers to purchase some vehicles. write a short paragraph to explain to the manufacturer when the company should and should not record this sales revenue and related expense for cost and good sold. mention the accounting acting that provide that basic for your explanation large auto manufacturers sells large fleets of vehicle to auto rental companies, such hertz, suppose hertz is negotiating with the auto manufacturers to purchase some vehicles. write a short paragraph to explain to the manufacturer when the company should and should not record this sales revenue and related expense for cost and good sold. mention the accounting acting that provide that basic for your explanation large auto manufacturers sells large fleets of vehicle to auto rental companies, such hertz, suppose hertz is negotiating with the auto manufacturers to purchase some vehicles. write a short paragraph to explain to the manufacturer when the company should and should not record this sales revenue and related expense for cost and good sold. mention the accounting acting that provide that basic for your explanation

Explanation / Answer

As per the accounting principle, Revenue recognition, the revenue should be recognized when the sales is actually rendered i.e. when the goods is given to the customer. The manufacturer should only execute the sales deed when the sales has actually incurred irrespective the cash against the same has been received or not.

The company will also record the associated cost of sales when the sales is incurred. In this case, the actual sales has not yet completed as the deal is still under negotiation. So the revenue should not be recognized until and unless the vehicle is transferred to the buyer.

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