revenue vs. cogs per GAAP



Say you have a company that sells two products X and Y, where X is
used by Y (e.g. plastic bullets for a BB gun).

The company selling X and Y have a contract with their customer that
says the more of X they buy, the bigger the discount they will get
when purchasing Y, but there is nothing in the agreement as to just
how much X they are required to purchase, so we can't know the final
selling price of Y until the contract expires (contracts are generally
for 120 days) and we know how much of X was purchased (so we know how
much discount to apply to Y).

The customer was shipped Y at the beginning of the contract even
though the purchase price wasn't yet known, and then they were shipped
units of X periodically throughout the period of the contract. At the
expiration of the contract, the final price of Y is calculated an an
invoice mailed to the customer.

The question is, when can the selling company recognize the sale price
of Y in their COGS. Do they get the COGS deduction:

1) When they ship Y (they use FOB shipping so title passes when it is
2) When the contract concludes and the final price of Y can be
3) When the invoice is put in the mail, or recv'd by the customer.
4) Some other moment in time

The price of Y can't be included in revenue until the final price is
known, per SAB 104, and the matching principle would tend to suggest
the COGS can't be deducted until the price of Y is recorded as
revenue, so I'm leaning towards (2), but I can't find anywhere, if it
exists at all, when GAAP says a sale actually occurs. Or are SAB
considered part of GAAP?


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