Revenue Recognition for E-Commerce Retailers

Abstract

. The rapid development of E-commerce has radically changed financial accounting methods and theory. In this paper, we use a descriptive analysis to show that E-commerce revenue may be tallied via gross or net methods, depending on several guidelines. The role of the supplier can also have a significant impact on determining whether the E-commerce entity is acting as an agent or a principal. The impact of reporting gross and net income remains the same, as do the current margins of profitability. For investors who value companies based on sales growth rather than profitability, data can be misleading. In May 2014, the Financial Accounting Standards Board issued an Accounting Standards Update, targeting revenue from contracts with customers. This guidance required more detailed disclosures to ensure financial statements would be understandable in terms of nature, amounts, timing, and revenue and cash flows arising from contracts. Companies have not fully adopted this guidance, however. In any case, the new standard may be applied retrospectively or as a cumulative adjustment as of the date of adoption.