Ford Canada sells large fleets of vehicles to auto rental companies, such as Budget and Avis. Suppose Budget is negotiating with Ford to purchase 1,000 Explorers. Write a short paragraph to explain to Ford when the company should, and should not, record this sales revenue and the related expense for cost of goods sold.

Let's decide how and when Ford Canada should recognize revenue.

Ford Canada should record sales revenue when the revenue is (a. collected b. deferred c.earned) by (a.agreeing to deliver b.delivering c.never delivering) automobiles to the auto rental companies. Ford should not record any revenue (a.after b.during c. prior to) delivery of the vehicles to the auto rental companies because Ford hasn't (a. collected b. deferred c. earned) the revenue yet.

Now let's decide how and when Ford should record the cost of the sale.

Ford should record the cost of goods sold (a. after b.at the same time c.before) it records the revenue from the sale.