Question
The birth of the Internet in the 1990s led to the creation of a new industry of online retailers such as Amazon, Overstock.com, and PCM,
The birth of the Internet in the 1990s led to the creation of a new industry of online retailers such as
Amazon, Overstock.com, and PCM, Inc. Many of these companies often act as intermediaries between
the manufacturer and the customer without ever taking possession of the merchandise sold. Revenue
recognition for this type of transaction has been controversial.
Assume that Overstock.com sold you a product for $200 that cost $150. The companys profit on the
transaction clearly is $50. Should Overstock recognize $200 in revenue and $150 in cost of goods sold
(the gross method), or should it recognize only the $50 in gross profit (the net method) as commission
revenue?
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