Bill-and-hold sales

Definition

Bill-and-hold sales are transactions where goods are billed to the customer but not yet delivered. These sales can be used improperly to inflate revenue figures if not meeting specific criteria set by accounting standards.

5 Must Know Facts For Your Next Test

1. Bill-and-hold sales must meet certain criteria to be recognized as revenue, including the buyer requesting the hold and having a legitimate business purpose.
2. Improper use of bill-and-hold sales has been a common method of financial statement fraud to prematurely recognize revenue.
3. The SEC closely monitors bill-and-hold arrangements due to their potential for abuse in inflating earnings figures.
4. One of the Sarbanes-Oxley Act requirements is stricter internal controls on revenue recognition, which includes scrutinizing bill-and-hold transactions.
5. Auditors must ensure that all conditions for recognizing bill-and-hold sales are met, such as confirmed orders and proper documentation.

Review Questions

Related terms

Revenue Recognition:

The accounting principle dictating how and when revenue is accounted for.

Internal Controls:

Processes and procedures implemented to ensure integrity in financial reporting and compliance with laws and regulations.

Sarbanes-Oxley Act:

A law enacted to improve corporate governance and enhance accuracy in financial reporting.