![]() does not know the recovery rate of their sales to customers. The sales were made on credit, and Shiny Clothes Ltd. The retail store sells its inventory to multiple customers for a total sale price of $130,000 – implying a $30,000 profit. is a retail store that recently purchased inventory costing $100,000. Net profit is not recognized until the cash collected exceeds the cost of the item and/or service sold. ![]() The underlying concept behind this method is as follows: Accounting standards IAS 18 require a company to recognize revenue only when the amount is measurable and cash flows are probable. Therefore, it is used to account for revenue when revenue streams from a sale cannot be accurately determined. The cost recovery method is a method of revenue recognition in which there is uncertainty. Intuition Behind the Cost Recovery Method ![]() ![]() ![]() In other words, using this method, profits are only recognized when cash payments have recovered the seller’s cost. The cost recovery method of revenue recognition is a concept in accounting that refers to a method in which a business does not recognize profit related to a sale until the cash collected exceeds the cost of the good or service sold. Updated DecemWhat is the Cost Recovery Method? ![]()
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