Final answer:
The seller should recognize revenue when they are no longer exposed to risks of ownership, often after the return period. Offering a money-back guarantee can reassure buyers with imperfect information, ensuring they feel comfortable making a purchase.
Step-by-step explanation:
When a seller is exposed to continued risks of ownership through the return of the product, the seller should recognize revenue when the uncertainty is resolved, which is typically after the return period has expired or once the product is accepted by the customer. This accounting principle ensures that revenue is not overstated and reflects the actual economic reality of a transaction.
In the goods market, a seller may offer a money-back guarantee to reassure a possible buyer facing imperfect information. This guarantee acts as a promise of quality and encourages customers to make a purchase even if they are unsure about keeping the product, especially in situations where they can't physically inspect the goods, such as when buying through mail-order catalogs or online.
As for a large number of shareholders owning a company, determining how and when the company obtains money from its sales is critical for revenue recognition and financial reporting. The timing of revenue recognition can affect the company's financial statements and overall valuation.