Bill and Hold Journal Entry

Bill and hold is the sale transaction seller records revenue before the goods are delivered to the buyer. The seller issue invoice and record revenue while the inventory remains in the warehouse.

The company sells the inventory to the buyer to generate revenue. The selling of inventory is a process that involves the transfer of ownership of goods from one party to another in exchange for money. This transaction may take place between businesses, or between a business and an individual consumer. Inventory is typically sold in order to generate revenue, which can be used to fund other aspects of the business, such as overhead costs or expansion plans. In order to ensure that the sale of inventory is successful, businesses must carefully manage their stock levels and pricing. They must also have a clear understanding of their target market and what type of products they are willing to purchase. By carefully managing these aspects of the business, companies can maximize their chances of generating revenue through the sale of inventory.

In the business operation, the seller will require to deliver the goods to the buyer after the receiving order. The delivery of goods will depend on the agreement between the seller and buyer. Most of the time, it will be made based on the purchase order. The goods’ specifications and the quantity will depend on the purchase order. During the delivery, the buyer will compare the purchase order with the actual goods received. The buyer will try to ensure that they receive only the goods that they have ordered.

After delivery of goods and customers agree to receive them without any problem, the supplier will issue the invoice to the customers. The invoice will depend on both the purchase orders and delivered goods. The price will depend on the purchase order which both parties already agree. The quantity will depend on the delivery that the customer has received. The invoice is issued to demand payment for the goods which are already received only.

Based on the accounting treatment, the seller can record the revenue when the inventory is transferred to the customers. The risk and reward to transfer the inventory are transferred to the customer. The invoice is just the document that uses as the reference and the demand for payment from customers.

However, the bill and hold transaction allows the seller to record revenue while the goods are not yet delivered to the customers. It can be processed under strict conditions as it is related to the case of fraud a company trying to manipulate revenue by trying to record fake sales.

Requirement for bill and hold transaction

In order to record the bill and hold transactions, the company needs to comply with the following criteria:

• The ownership is transferred to the buyer: Even if the inventory is not yet delivered to the customer, the ownership must be transferred to the buyer.
• Buyer has a strong commitment to purchasing the goods: both seller and buyer must have a contractual obligation to sell and purchase the inventory. It prevents the company from returning the goods due to fraud.
• Buyer has requested to delay the shipment: The seller is ready to deliver the goods to the customer, but the customer requires to delay shipment due to various reasons.
• Schedule for shipment: Both parties must have the exact schedule for the delivery which will happen in the foreseeable future.
• The seller has completed the obligation over the production: It means the goods are complete and ready to deliver.
• The goods store separately and the seller cannot use the goods to sell to other customers.

Journal Entry for Bill and Hold Transaction

The bill and hold transaction will allow the supplier to record the sale revenue.

The journal entry is debiting accounts receivable and credit sales revenue.

Account	Debit	Credit
Accounts Receivable	000
Sales Revenue		000

The transaction increases the accounts receivable and sale revenue.

At the same time, the company records the cost of goods and reduces the inventory from balance sheet. It may be strange as the inventory still remains in the company location. However, the ownership is transferred to the customer and it is the bill and hold transaction.

The journal entry is debiting cost goods sold – Bill and Hold and credit inventory.

Account	Debit	Credit
COGS – Bill and Hold	000
Inventory		000

This is the cost of goods sold account which presents on the income statement.

On a certain date, the seller will deliver the goods to the customer. So accountant will reverse the COGS – Bill and Hold to normal COGS.

The journal entry is debiting COGS and credit COGS-Bill and Hold.

Account	Debit	Credit
COGS	000
COGS – Bill and Hold		000

Example

Company ABC has received the order from Company Z to produce the specially customize inventory for $ 25,000. ABC has completed the production with a total cost of $ 15,000. And they are ready to transport the inventory to the customer. However, Company Z has requested to delay the shipment for a week due to the lack of warehouse space.

Please prepare the journal entry for the bill and hold the transaction.

The supplier has completed the order and is ready to ship the inventory to the customer.

The journal entry is debiting accounts receivable $ 25,000 and credit sale revenue $ 25,000.

Account	Debit	Credit
Accounts Receivable	25,000
Sales Revenue		25,000

The company also records the COGS and inventory. The journal entry is debiting COGS $ 15,000 and credit inventory $ 15,000.

Account	Debit	Credit
COGS – Bill and Hold	15,000
Inventory		15,000

On the agreed date, ABC will deliver the inventory to the customer. The journal entry is debiting CGOS and credit COGS – Bill and Hold.

Account	Debit	Credit
COGS	15,000
COGS – Bill and Hold		15,000