Question

What can you say about Revenue Recognition in cases that there is a risk of not paying the invoices between one company which sells goods and other company which buys good and faces financial diffuculties to pay off the amount of the invoices

Answer 1

where there is risk that the buying company may not make payment to the selling company for the goods sold and invoice raised :

• If there is a doubt regarding the receipt of payment from the buying company then the selling company should recognize the amount is allowance for doubtful accounts.
• But in case the doubt is substantial in nature that is there is a risk where no payment will be received from buying company , then the seller company should not recognize any revenue until payment is received.

In this case:

as the buyer company faces financial difficulties to pay the amount and this poses a substantial doubt on the receipt of payment , the seller company should not recognize any revenue until payment is received.