Advanced Accounting · AS 9 Revenue Recognition

AS 9: Recognition of Revenue from Sale of Goods

Updated 5 October 2026 · Fact-checked

Under AS 9, you recognise revenue from sale of goods when the seller has transferred the property in the goods to the buyer for a price, or all significant risks and rewards of ownership, and no significant uncertainty remains about collecting the price. Check these conditions, then fix the date of recognition.

Understand Recognition of Revenue from Sale of Goods

Revenue is the gross inflow of cash, receivables or other consideration from ordinary activities. For sale of goods, the key question is when to book it. Booking too early overstates profit. Booking too late understates it.

AS 9 gives a simple test. Revenue is recognised when two things hold: (a) the seller has transferred to the buyer the property in the goods for a price, or all significant risks and rewards of ownership, so that the seller keeps no effective control over the goods; and (b) no significant uncertainty exists about the amount of consideration that will be received.

Legal title and risks usually pass together, but not always. The Standard looks at substance. If title passes but the seller keeps significant risks (for example, the buyer can return goods freely), do not recognise the sale. If title has not passed but all significant risks and rewards have, revenue may still be recognised. The Standard also notes that where the seller retains only an insignificant risk, such as retaining title to secure the price, revenue is still recognised.

Special cases follow the same test. In consignment, the consignee is only an agent, so risks and rewards stay with the consignor. Revenue is recognised only when the consignee sells to a third party, and it is measured at the price at which the consignee sells to that third party. In a bill and hold sale, the buyer has taken title and accepted billing but delivery is delayed at the buyer's request. Revenue is recognised when the buyer takes title, provided the goods are identified, ready for delivery and not subject to the seller's further performance. In instalment sales, revenue on the sale price excluding the interest element is recognised on the date of sale. The interest is recognised over time as it accrues, based on the unpaid balance and the rate applicable.

Key rules to remember

Core recognition test: Revenue recognised when (1) property in goods, or all significant risks and rewards of ownership, transferred to buyer AND (2) no significant uncertainty about consideration; Both conditions must hold. If either fails, defer recognition.
Consignment sales: Revenue recognised when the consignee sells the goods to a third party; Goods sent to the consignee are not a sale. Unsold stock stays with the consignor.
Bill and hold: Revenue recognised when buyer takes title, if goods are identified and ready, and buyer accepts delivery delay; Check that the delay is at the buyer's request and the seller has nothing more to perform.
Instalment sales: cash price: Revenue on date of sale = Sale price excluding interest (cash price); The interest component is not part of sale revenue on day one.
Instalment sales: interest: Interest for a period = Outstanding balance × Rate × Time; Recognise interest revenue as it accrues, over the instalment period.
Significant uncertainty about collection: If a significant uncertainty exists about collection, defer revenue until the uncertainty is resolved; Recognise revenue when the uncertainty is resolved and collection is reasonably certain. If the uncertainty arises after revenue has been recognised, do not reverse or adjust the revenue. Recognise the uncollectable amount as an expense (provision or bad debt).

How to solve Recognition of Revenue from Sale of Goods questions

Use this order for any AS 9 sale-of-goods question. It stops you booking revenue on the wrong date.

1Read the facts and list each event with its date: order, dispatch, delivery, billing, title transfer, payment.
2Identify the type of transaction: ordinary sale, consignment, bill and hold, instalment sale, sale with return rights or sale on approval.
3Apply condition one: has property in the goods, or all significant risks and rewards, passed to the buyer on that date?
4Apply condition two: is there significant uncertainty about collecting the price? If yes, defer.
5Fix the date and amount of revenue. Separate the interest element in instalment sales and take cash price as revenue.
6Pass the entry or compute the figure asked: sales, cost of goods sold, closing stock, interest income or profit for the year.
7Write one line of reasoning citing AS 9, since step marks go to the stated principle.

Quickest way: Date test and two-condition check

When to use it: Use it for MCQs and for the first five minutes of a written problem.

MCQ: look for the words consignee, approval, buyer's request or instalment. These point to the special rule.
Consignment: revenue only on sale by consignee. Remove any option that says revenue on dispatch.
Bill and hold: revenue arises when title passes, not when goods are physically delivered, but only if all of these hold: the buyer takes title and accepts billing, the delay in delivery is at the buyer's request, and the goods are identified and ready for delivery. If any one is missing, do not recognise revenue early.
Instalment: revenue is the cash price at sale date. Interest comes later.
Written answer: format as Facts, AS 9 condition, Conclusion, Working. Show the revenue amount and the date clearly.

Common mistakes in Recognition of Revenue from Sale of Goods

Recognising revenue when goods are dispatched to a consignee.
Dispatch looks like delivery and an invoice is often raised for the goods.
Fix: Treat consignment stock as the consignor's inventory. Book revenue only when the consignee sells to a third party.
Treating the total instalment price as revenue on the sale date.
Students ignore that the price includes finance charges.
Fix: Take the cash price as sales revenue. Spread the interest over the instalment period.
Insisting that revenue needs physical delivery.
Delivery feels like the natural trigger.
Fix: Ask whether title or all significant risks and rewards have passed. In bill and hold, revenue can come before delivery.
Ignoring uncertainty about collection.
Students focus only on the transfer of goods.
Fix: Always test the second condition. If collection is significantly uncertain, defer revenue until the uncertainty resolves.
Forgetting to keep unsold goods in closing stock.
The problem is solved only from the sales side.
Fix: If revenue is not recognised, the goods remain inventory valued under AS 2, at cost or net realisable value, whichever is lower.

Worked examples

Example 1

A manufacturer dispatched goods costing ₹6,00,000 to a consignee on 20 March. The manufacturer sent a pro-forma invoice for ₹8,00,000, which is the total price at which the consignee is expected to sell the whole lot to customers. The goods are homogeneous and the consignee sells them at this expected uniform price. By 31 March, the consignee had sold part of the goods to third-party customers for ₹5,00,000. The remaining goods were still unsold with the consignee on 31 March. How much revenue should the manufacturer recognise for the year ended 31 March, and at what value are the unsold goods carried? Ignore consignment expenses and assume the net realisable value of the unsold goods is above cost.

Show the solution

The consignee is an agent. Risks and rewards stay with the manufacturer until the consignee sells to third parties (AS 9). The pro-forma invoice of ₹8,00,000 is not a sale.
Revenue is the price at which goods were sold to third parties: ₹5,00,000.
The goods are homogeneous and sold at the expected uniform price. So sales of ₹5,00,000 represent ₹5,00,000 ÷ ₹8,00,000 = 5/8 of the lot by quantity and value. Cost of goods sold: ₹6,00,000 × 5/8 = ₹3,75,000.
Portion unsold = 3/8 of the lot. Expected selling price of the unsold goods is ₹8,00,000 − ₹5,00,000 = ₹3,00,000, which is above cost, so NRV is not a concern.
Unsold goods are valued at cost: ₹6,00,000 − ₹3,75,000 = ₹2,25,000 (or ₹6,00,000 × 3/8 = ₹2,25,000). They stay in the manufacturer's inventory as per AS 2, not at the ₹3,00,000 selling price.

Answer: Revenue recognised is ₹5,00,000. Unsold stock is carried at cost of ₹2,25,000 in the manufacturer's inventory. The gross margin is ₹5,00,000 − ₹3,75,000 = ₹1,25,000. This relies on the stated assumption that the goods are homogeneous and sold at the expected uniform price.

Example 2

On 1 April, a company sold a machine on instalment terms. Cash price is ₹3,00,000. The buyer pays ₹1,20,000 on 1 April and the balance in two equal annual instalments of ₹1,03,714 each (rounded to the nearest rupee), payable on 31 March each year, with interest at 10% p.a. on the outstanding balance. Show the revenue to be recognised on 1 April and the interest income for each year. Work to the nearest rupee and note any rounding difference.

Show the solution

Recognise cash price as sales revenue on the date of sale, since goods are delivered and risks and rewards have passed: ₹3,00,000.
Cash paid on 1 April: ₹1,20,000. Balance outstanding: ₹3,00,000 − ₹1,20,000 = ₹1,80,000.
Check the instalment: ₹1,80,000 ÷ (1 ÷ 1.10 + 1 ÷ 1.10²) = ₹1,80,000 ÷ 1.735537 = ₹1,03,714 (to the nearest rupee; the exact figure is ₹1,03,714.29).
Interest for year 1 = ₹1,80,000 × 10% = ₹18,000.
Instalment on 31 March of year 1 is ₹1,03,714.29 (exact), which includes interest of ₹18,000 and principal of ₹85,714.29.
Outstanding after year 1 (exact): ₹1,80,000 − ₹85,714.29 = ₹94,285.71, or ₹94,286 to the nearest rupee.
Interest for year 2 = ₹94,285.71 × 10% = ₹9,428.57, which rounds to ₹9,429. Check: ₹94,285.71 + ₹9,428.57 − ₹1,03,714.29 = ₹0, so the exact figures clear the balance to nil.
Total interest = ₹18,000 + ₹9,428.57 = ₹27,428.57, or ₹27,429 to the nearest rupee. Check with the exact instalments: ₹1,03,714.29 × 2 = ₹2,07,428.57. Less the ₹1,80,000 balance, this gives ₹27,428.57. The ₹1,20,000 down payment is not part of this.
Rounding note: the instalments as actually paid (₹1,03,714 × 2 = ₹2,07,428) give ₹27,428, which is ₹1 below ₹27,429. This ₹1 arises only because each instalment is rounded down by about ₹0.29. In an exam, state it as a rounding difference.
Interest income is recognised as it accrues and is separate from sales.

Answer: Revenue on 1 April is ₹3,00,000 (cash price). Interest income is ₹18,000 for year 1 and ₹9,429 for year 2 (₹9,428.57 rounded). Total interest is about ₹27,429 (exact ₹27,428.57). The ₹1 difference from the instalments as paid (₹2,07,428 − ₹1,80,000 = ₹27,428) is due to rounding. Interest is not included in sales.

Exam tips

For MCQs, hunt for trigger words: consignee, approval, buyer's request, instalment. Each maps to one rule.
In written answers, name AS 9 and quote the transfer-of-risks-and-rewards condition before computing anything.
Always show the date of revenue recognition in a one-line note. Examiners give marks for the date.
In instalment problems, split cash price and interest in a small table before passing entries.
If the question mentions unsold or undelivered goods, state their closing stock value as a final line.

Practice questions from AS 9 Revenue Recognition

Recognition of Revenue from Sale of Goods in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Recognition of Revenue from Sale of Goods: frequently asked questions

When is revenue recognised on sale of goods under AS 9?

When the property in the goods, or all significant risks and rewards of ownership, has passed to the buyer and there is no significant uncertainty about collecting the price. Both conditions must be met.

Is revenue recognised when goods are sent on consignment?

No. The consignee is an agent. Revenue is recognised when the consignee sells the goods to a third party.

How is revenue recognised in a bill and hold sale?

Revenue is recognised when the buyer takes title, provided the goods are identified, ready for delivery and the delay is at the buyer's request. The seller must have nothing further to perform.

How are instalment sales treated under AS 9?

The sale price excluding the interest element is recognised as revenue on the date of sale. The interest is recognised over time as it accrues on the unpaid balance.