4.15 Sales With a Right of Return

In some contracts, an entity sells a good to a customer and grants the customer the right to return the good for a refund (e.g., if the customer is dissatisfied with the product). Under ASC 606-10-55-25, “[f]or any amounts received (or receivable) for which an entity does not expect to be entitled, the entity should not recognize revenue when it transfers products to customers but should recognize those amounts received (or receivable) as a refund liability.” This liability represents a refundable deposit received from the customer and therefore is a monetary liability under ASC 830. Therefore, if the sales price of the good is denominated in a foreign currency, the entity should remeasure the liability in its functional currency as of each reporting date, with changes recognized in earnings as transaction gains or losses (in a manner consistent with the remeasurement of refundable advance payments denominated in a foreign currency, which is discussed in Section 4.7).