Final answer:
Bill-and-hold sales involve billing for goods while holding them in inventory, with revenue recognition depending on specific conditions being met and when the buyer assumes the risks and rewards of ownership.
Step-by-step explanation:
A bill-and-hold sale is a type of transaction in which the seller bills the purchaser for goods but holds the items in inventory, not immediately delivering them. Revenue recognition in these situations typically requires certain conditions to be met, according to the Financial Accounting Standards Board (FASB). The conditions include having a substantive reason for the bill-and-hold arrangement, the product must be identified separately as belonging to the buyer, the product must be ready for physical transfer, and the seller cannot have the ability to use or direct the sale of the goods.
Revenue is recognized when the performance obligations under the contract are satisfied, which, in a bill-and-hold scenario, may occur when the customer assumes ownership and the related risks and rewards of the goods, even though the goods have not yet been physically transferred. It's vital to understand the relationship between cost and revenue and ensure that revenue recognition is in compliance with applicable accounting standards and principles.