BOP Program Statement 8531.14 § 3

Generally, industry practices recognize revenue at the point of sale. However, if a right of return

exists, there is a risk that ownership (title) will not pass to the buyer and will be reacquired by the

seller. Therefore, revenue is recognized if the following four criteria are met, or after the earning

process has been completed and an exchange has taken place (however, exceptions to each

criterion may apply):

■ Persuasive evidence of an arrangement exists.

■ Delivery has occurred or services have been rendered.

■ There is a fixed or determinable price.

■ There is assurance or reasonable expectation of collection.

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a. Considerations. In addition, FPI also considers the following specific items when

determining when revenue can be recognized:

■ The price between the seller and the buyer is substantially fixed or determinable.

■ The seller has received full payment, or the buyer is indebted to the seller and the

indebtedness is not contingent on resale of the merchandise.

■ Physical destruction, damage, or theft of the merchandise would not change the buyer’s

obligation to the seller.

■ The buyer has economic substance and is not a front, straw party, or conduit, existing for the

benefit of the seller.

■ No significant obligations exist for the seller to help the buyer resell the merchandise.

■ A reasonable estimate can be made of the amount of future returns.

■ Evidence of agreement.

b. Methods of Recognition. FPI primarily uses four methods for recognizing revenue. These

methods may be combined, based on the customer’s requests or needs.

■ Free on Board (FOB) Origin.

■ Free on Board (FOB) Destination.

■ Bill and Hold.

■ Multiple Element Contracts.

Note: FOB is used in conjunction with a physical point to determine:

■ The responsibility and basis for payment of freight charges.

■ Unless otherwise agreed, the point where title for goods passes to the buyer.

c. Negotiation Issues., When negotiating price, terms, and conditions, the following must be

considered:

■ Impact on the Corporation’s cash flow.

■ Plant and warehouse capacity.

■ Reliability of transportation or distribution methods.

■ The customer’s creditworthiness.

■ The best interests of FPI.

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