00:01
Now for the case explanation, the case illustrates the difference between recognizing venues as a principal versus an agent.
00:20
Under revenue recognition rules, when a company acts as a principle, it takes control of the goods or services before selling them to customers and recognizes the gross amount of the sale as revenue.
00:52
However, if the company acts as an agent, it facilitates the sale between the sales.
00:57
The supplier and the customer earning only a commission or net revenue based on a share of the transaction.
01:36
The auction c .com takes control of the bicycle by purchasing it for 200 before selling it to the customer for 300.
02:02
Octanco .com is acting as a principal in the transaction.
02:09
As a principle, it recognizes the full 300 as revenue and records the 200 payment to the supplier as the cost of goods sold.
02:18
So the revenue recognized is 300.
02:26
Now the octanco .com never takes control of the bicycle and the supplier ships it directly to the customer.
02:39
Octanco .com is acting as an agent in the transaction in this one...