See Also:
Accounting Principles
Percentage of Completion Method
Completed Contract Method
Cost Recovery Method
Installment Method
Point of Sale (POS) Method Definition
The Point of Sale (POS) Method also known as the Revenue Method or Sales Method is one of the many methods under the Revenue Principle of Accounting. This method records the revenue at the point of sale because cash is received on site or it is reasonably certain that cash will be received soon and is thus a finalized transaction. They commonly use this method in grocery stores or other entities such as Wal-Mart. Companies can also record a sale if the amount of revenue can be measured objectively and the receipt is certain which becomes useful for companies such as a mining or lumber company. Another use of the method can be associated with a service that is provided like cable, car services, and certain utilities.
Point of Sale (POS) Method Examples
Incorporate the method of sales in several different ways. We will give various examples to explain the method.
Example 1:
Suppose that Fred goes into a music store to buy a CD. He makes a selection and then pays 15 dollars cash or the price of the CD to the store clerk. The music store would then use the sales method to record Fred’s purchase of the CD. The sales method would then post the following journal entries in recording the sale.
Cash…………………………………$15
Sales Revenue………………………………..$15
COGS………………………………..$10
Inventory……………………………………….$10
Example 2:
Timber Inc. specializes in the cutting and transportation of lumber. The company has recently sent a load of lumber with a costs of $10,000 to Furniture Inc. Since Timber Inc. has already delivered the goods to the customer (Furniture Inc.), Timber Inc. can go ahead and recognize the revenue because it has been objectively measured and there is reasonable certainty that the company will receive cash in the near future. Therefore, record journal entries as follows:
At time of Delivery:
Account Receivable (A/R)………..$10,000
Sales Revenue………………………………..$10,000
Upon Receipt of Cash:
Cash…………………………………..$10,000
A/R………………………………………………..$10,000
Example 3:
Plumber LLC performs plumbing work to households. Recently, they performed services to Brian because his kitchen drain was clogged. To unclog the drain Johnny the Plumber, an employee of Plumber LLC, snaked the piping and fixed the problem in an hour. Plumber Inc. can go ahead and bill Brian for an hour of service provided by Plumber LLC. Since the service has already been performed, the company needs to recognize the revenue under the sales method as follows:
At the time service is performed:
A/R……………………………………..$100
Service Revenue……………………………….$100
Upon the receipt of cash:
Cash…………………………………..$100
A/R………………………………………………….$100
