Jim - receiving a deposit or a hold on your CC, and they can book the sale on their books, along with an accounts receivable. Some in management like to operate this way, particularly if they are rewarded on sales.
Do you have examples of companies booking preorders as revenue, or are you speculating?
Standard accounting practice....this is rather common
Very interesting……!!!
It may be interesting but it isn’t standard accounting practice. Companies may do whatever they like internally, but would get sued if they tried this with their public filings.
Just curious (and not trying to throw fuel on this), but I believe Adorama is a private S-Corp company, and they don't need to follow GAAP reporting?
While private S corporations are not mandated to adhere to Generally Accepted Accounting Principles (GAAP) for financial reporting, they are still subject to specific tax accounting rules established by the Internal Revenue Service (IRS). These rules are designed to ensure that revenue recognition is consistent, accurate, and not arbitrary.
Under the Internal Revenue Code, particularly Section 446, taxpayers are required to use a consistent accounting method that clearly reflects income. The IRS permits methods such as cash, accrual, or other approved methods, but once a method is chosen, it must be applied consistently. To change an accounting method, a taxpayer must obtain IRS approval, ensuring that income is not manipulated through frequent changes in accounting practices.
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For accrual-method taxpayers, Section 451 outlines the "all-events test," which stipulates that income is recognized when:
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- All events have occurred that fix the right to receive the income.
- The amount can be determined with reasonable accuracy.
This test ensures that income is reported in the correct period, aligning with the economic reality of transactions.
The IRS's emphasis on consistency and clear reflection of income means that S corporations cannot arbitrarily recognize revenue. Even without GAAP compliance, the tax accounting methods must provide a true and accurate representation of income. Failure to comply can result in the IRS mandating a change in accounting methods or imposing penalties.
While private S corporations are not bound by GAAP, they are still required to follow IRS tax accounting rules that govern revenue recognition. These rules are in place to prevent arbitrary financial reporting and ensure that income is accurately and consistently reported for tax purposes.
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