Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Specialized Accounting

Exchange Transactions

GASB 62 specifies how an agency recognizes revenue for exchange transactions.

Revenue from exchange transactions is generally recognized when an exchange, in the ordinary course of operations, is affected unless the circumstances are such that the collection of the exchange price is not reasonably assured. Accordingly, revenues from exchange transactions are accounted for at the time a transaction is completed, with appropriate provision for uncollectible accounts.

Revenue Recognition When Right of Return Exists

Recognize revenue from such sales at the time of sale only if ALL of the following conditions are met:

• Seller’s price is substantially fixed or determinable at the date of sale.
• Buyer has paid the seller (or is obligated to pay seller) and the obligation is not contingent on resale of the product.
• Obligation of the buyer to pay the seller does not change if the product is lost or damaged.
• Buyer acquiring the product for resale has economic substance apart from that provided by seller.
• Seller does not have significant obligations for future performance to directly bring about resale of the product by buyer.
• Amount of future returns can be reasonably estimated.

If the above conditions are met, any costs or losses expected due to any returns are accrued, at the time of sale, if the loss contingency is probable and can be reasonably estimated.

Sales revenues and costs associated with the return are reduced to reflect estimated returns.

Revenues not recognized at the time of sale (because the above conditions are not met) shall be recognized either:

• When the return privilege has substantially expired
  –OR–
• When the above conditions are subsequently met (whichever occurs first)