Final answer:
I disagree with the premature recognition of the sale. Revenue should be recorded when earned, aligning with the merchandise shipment in 2017, not when the order is received.
Step-by-step explanation:
I disagree with the controller's decision to record the sale in 2016. The revenue recognition principle, a key guideline in accounting, states that revenue should be recognized when it is earned and realizable, regardless of when the cash is received. Since the merchandise will ship early in 2017, and the order was received at the end of 2016 fiscal year, the revenue should not be recognized until the merchandise is shipped and the performance obligation is fulfilled.
This is important to ensure the financial statements provide accurate and fair representation of the company's financial performance. Recording this order as a 2016 sale would misstate both the 2016 and 2017 financial statements, potentially misleading stakeholders about the company's performance and stability. It’s essential that the company adheres to the accrual basis of accounting to maintain transparency and integrity in financial reporting.
The controller should agree with recording the sale in 2016 because it follows the revenue recognition principle in accounting. According to this principle, revenue should be recognized when it is earned, regardless of when the payment is received. In this case, the sale was made to a long-time customer, indicating an established customer relationship and a high likelihood of payment. As long as the merchandise will ship early in 2017, the revenue can be recognized in the 2016 fiscal year.