Shipping Terms and Revenue Recognition Under ASC 606 and Ind AS 115

On 31 December the warehouse pushes forty trailers out of the yard, billing invoices every one of them, and the ledger shows a record month. In January the auditors pull a sample of December invoices, match them to delivery receipts, and find that a third of the loads were sold on destination terms and arrived after New Year. Revenue moves back, the bonus pool moves with it, and the controller rebuilds the cutoff by hand.

That failure starts in logistics data, not in the accounting standard. Shipping terms, goods-issue timestamps, bills of lading and proof of delivery decide which period a sale belongs to, and most ERPs post revenue on whichever event their billing run was built around. This guide connects each shipping term to the control indicators in ASC 606 and Ind AS 115 and shows the evidence a closing team needs for every in-transit sale.

• What it covers: FOB and synthetic FOB terms, Incoterms, freight after control passes, bill-and-hold, and the gap between GST invoice timing and Ind AS revenue timing.
• What it includes: a worked cutoff for one US and one Indian shipment, a cutoff query, an evidence ownership table and a close checklist.

Shipping terms are evidence of control, not the revenue rule itself

Revenue for a product sale is recognised when the customer obtains control, and shipping terms are strong evidence of that moment without settling it alone. Both ASC 606 and Ind AS 115 list five indicators, and the terms of sale feed at least three of them.

ASC 606-10-25-30 applies when a performance obligation is not satisfied over time. It tells the seller to consider indicators of control that include, but are not limited to, a present right to payment, the customer's legal title, transfer of physical possession, the customer holding the significant risks and rewards of ownership, and customer acceptance. Ind AS 115 paragraph 38 sets out the same five indicators.

• Right to payment: payment terms that start the credit clock on dispatch point toward control at dispatch; terms tied to receipt point the other way.
• Legal title: in US domestic sales, FOB shipping point generally passes title when goods are handed to the carrier, and FOB destination when they reach the customer, as KPMG's revenue handbook notes.
• Physical possession: the carrier holds the goods in transit, so possession alone rarely decides the question until delivery.
• Risks and rewards: who bears loss in transit, and who can resell or pledge the goods while they move.
• Acceptance: inspection or acceptance clauses can delay control beyond physical delivery when acceptance is more than a formality.

Incoterms behave differently. The ICC rules allocate cost, tasks and the point where risk passes, but they do not say when title transfers. A sale under FCA or CIF therefore needs the contract's title clause and payment terms read alongside the Incoterm. Our EXW versus FCA guide explains where delivery and risk pass under those two rules.

Reading FOB, synthetic FOB and Incoterms against the indicators

FOB shipping point usually means control at dispatch and FOB destination usually means control at delivery, but a seller's habit of replacing goods lost in transit can blur that line. The habit has a name, synthetic FOB destination, and Topic 606 changed how it is treated.

Under legacy US guidance, a seller that shipped FOB shipping point but replaced damaged goods free of charge generally could not recognise revenue until delivery, because it still carried the transit risk. KPMG's handbook explains that under Topic 606 risks and rewards are only one indicator. Revenue at shipment may be possible if the customer has the rewards of ownership and the other indicators point to dispatch.

Earlier revenue under synthetic terms has a cost. If control passes at shipment but the seller's practice is to cover transit losses, KPMG notes the practice may be a separate stand-ready obligation that takes a share of the price. Under US GAAP the seller can instead fold it into the shipping and handling policy election described below. Finance needs the credit memo history to know which applies.

Revenue for an FOB destination sale under ASC 606-10-25-30 and Ind AS 115 paragraph 38 normally follows the proof-of-delivery date, so every destination-term shipment dispatched within 5 days of period end needs a dated delivery receipt matched before the ledger closes and revenue is assigned.

Freight after control passes: the US election and the Ind AS route

When the seller arranges transport after the customer already controls the goods, US GAAP allows a policy election to treat that transport as fulfilment; Ind AS 115 has no matching paragraph. The difference changes how much revenue lands on the dispatch date.

ASC 606-10-25-18A says shipping and handling performed before the customer obtains control is not a promised service but an activity to fulfil the promise to transfer the good. ASC 606-10-25-18B lets an entity elect to treat shipping performed after control passes the same way, applied consistently and disclosed. If revenue is recognised before the shipping happens, the related costs must be accrued.

• Election made: all revenue, including any freight billed to the customer, is recognised when control passes at dispatch, and the expected carrier cost is accrued in the same period.
• Election not made: transport after control is assessed as a possible separate performance obligation, so part of the price is allocated to it and recognised as the transport is performed.
• Scope limit: KPMG's handbook says the election cannot be extended by analogy to custodial, storage or other post-transfer services.

KPMG lists the shipping and handling election among Topic 606 policy choices that are not allowable under IFRS Accounting Standards. Ind AS 115 is built on IFRS 15, so an Indian seller that controls transport after dispatch-point control should evaluate the freight as a potential separate performance obligation and agree the treatment with its auditor. Groups that report under both frameworks often avoid the US election to keep one answer.

Bill-and-hold: four tests and the warehouse evidence for each

A bill-and-hold sale is recognised before shipment only when all four criteria in ASC 606-10-55-83 are met, and three of them are proven by warehouse records rather than by sales paperwork. If the WMS cannot show segregation and a reallocation block, the revenue waits.

Paragraph 55-81 describes a contract under which the seller bills the customer but keeps physical possession until a later transfer, for example because the customer lacks space. Paragraph 55-83 adds four criteria to the general indicators: a substantive reason, often the customer's own request; the product identified separately as the customer's; the product ready for physical transfer; and the seller unable to use it or direct it elsewhere. Ind AS 115 paragraphs B79 to B82 cover the same arrangement.

• Substantive reason: keep the customer's dated written request and the business reason, such as a site not ready to receive. Quarter-end requests with no change in the customer's circumstances deserve scepticism.
• Separate identification: move the goods to a dedicated location or licence plate tagged with the customer and sales order, and print that location record at close.
• Ready for transfer: quality release complete, packed and labelled; work-in-progress or goods awaiting inspection fail this test.
• No redirection: place an allocation lock in the WMS so pick waves for other orders cannot consume the stock, and log any override with the approver's name.
• Custodial service: paragraph 55-84 asks whether storage after the sale is a remaining performance obligation that should take part of the price.

Bill-and-hold revenue under ASC 606-10-55-83 and Ind AS 115 paragraphs B79 to B82 needs all four tests met, and warehouse evidence proves three: a customer-tagged location, quality release before billing, and a WMS allocation lock with zero overrides between the invoice date and the eventual shipment.

Worked period-end cutoff for a US and an Indian shipment

The same shipment can land in different periods depending on the control point and the freight treatment. The example below runs one US and one Indian sale through each option so the closing team can see which numbers move.

• US facts, illustrative: 1,200 units at $85 each, cost $51 each, freight billed to the customer $2,400 and carrier cost $2,150. Dispatched 29 December 2026, delivered 4 January 2027, year end 31 December, six transit days with three in December, and ,400 taken as the freight service's standalone price.
• India facts, illustrative: 1,200 units at ₹7,000, cost ₹4,200 each, freight billed ₹1,80,000, transporter cost ₹1,62,000. FOR destination (free on road to the buyer's site, a common Indian term) or control at dispatch. Dispatched Pune to Chennai on 30 March 2027, delivered 2 April 2027, financial year ending 31 March.

Two things stand out. First, the Indian FOR destination sale shows GST output tax in March while the revenue falls in April, so the GST-to-books reconciliation for March needs an explicit "invoiced, not yet delivered" reconciling item. Second, the "no election" columns split freight by transit days purely for illustration; your measure of progress for the transport service should reflect how the service is actually performed.

The fulfilment cost of freight on a destination sale shipped in December follows the entity's fulfilment-cost policy, and many teams accrue it into the period of revenue. Agree that treatment once, document it, and apply it the same way in both entities so the group consolidation is not left reconciling policy differences every quarter.

Invoice timing under GST versus revenue timing under Ind AS

For goods that move, a GST tax invoice is due at or before removal, so GST timing follows dispatch while Ind AS revenue timing follows control. On destination terms the two dates fall in different periods whenever dispatch happens just before month end.

Section 12(2) of the CGST Act sets the time of supply of goods at the earlier of the invoice date, or the last date by which section 31 requires the invoice, and the date payment is received. Section 31(1)(a) requires the invoice before or at the time of removal where supply involves movement of goods. A truck leaving Pune on 30 March therefore carries a March invoice even if the buyer controls the goods only in April.

GST on a moving-goods sale in India arises on the tax invoice date under CGST Act sections 12(2) and 31(1)(a), while Ind AS 115 paragraph 38 places revenue at the control date, so a FOR destination load dispatched within 3 days of month end needs a reconciling item in the GST-to-ledger tie-out.

A bill-and-hold invoice in India creates the same gap in reverse. Issuing the invoice fixes the time of supply on the invoice date, even though the goods stay in the seller's warehouse, and the e-way bill comes later when the goods finally move. If the bill-and-hold criteria fail, GST is paid in the invoice month while revenue waits for dispatch or delivery. Our freight GL coding guide covers the separate question of where the freight cost lines post once the period is settled.

A year-end load recognised twice, hour by hour

Double counting usually comes from two automated triggers that were each correct in isolation. The trace below combines a billing-run trigger and a delivery-event trigger that nobody connected.

1. 31 December, 16:20: goods issue is posted for delivery 80044127 to a Denver customer on FOB destination terms. The nightly billing run creates invoice 26-118204 for $104,400 and posts it to revenue because the billing document type was configured for dispatch-point customers.
2. 31 December, 18:05: the carrier collects the trailer; the driver signs bill of lading 7731942, and the warehouse closes the dock record.
3. 2 January, 09:30: the close team runs its spreadsheet of destination-term shipments, finds invoice 26-118204, and books a manual entry moving $104,400 from December revenue to a contract liability.
4. 4 January, 11:12: the carrier's delivery status arrives, the POD image is attached, and a separate delivery-event job recognises $104,400 of revenue in January without checking that the invoice had already posted to revenue once.
5. 12 January, 15:40: the January revenue review shows the customer's sales $104,400 above the order book; the contract liability still holds the manual entry, and the controller reverses it.

Under the controlled design, the billing document type is chosen from the customer's control-point field. Destination-term invoices post to a billed-not-recognised account, and only the delivery event releases revenue, once. The manual spreadsheet disappears, and the cutoff test becomes a query rather than a hunt.

-- Destination-term shipments dispatched in the last 7 days of the period
-- whose revenue posted in the closing period without a delivery on or before period end
SELECT d.delivery_id,
       d.control_point,
       d.goods_issue_ts,
       p.pod_ts,
       i.invoice_id,
       i.net_amount,
       i.revenue_period
FROM   deliveries d
JOIN   invoices i        ON i.delivery_id = d.delivery_id
LEFT JOIN pod_events p   ON p.delivery_id = d.delivery_id
WHERE  d.control_point = 'DESTINATION'
  AND  d.goods_issue_ts >= :period_end - INTERVAL '7' DAY
  AND  d.goods_issue_ts <= :period_end
  AND  i.revenue_period = :closing_period
  AND  (p.pod_ts IS NULL OR p.pod_ts > :period_end);
-- Expected result at close: zero rows. Each row is a cutoff error to reverse.

Cutoff rules the ERP enforces and judgements finance keeps

Deriving the revenue trigger from a reviewed control-point field and blocking double recognition are fixed rules. Reading scanned delivery receipts and spotting replacement practices are tasks where software can assist, but the accounting conclusion stays with a named person.

Close checklist for in-transit revenue and its evidence

A short, repeatable checklist at every month end catches most shipping-term cutoff errors before auditors do. Run it on the last five working days of dispatches, not only on invoices above a materiality threshold.

Companies that bill freight to customers through a 3PL face an extra layer, because the 3PL's pass-through charges and markups have their own timing. The 3PL pass-through billing and markup page deals with that billing margin; this guide deals with the seller's own revenue timing. Completed work that has not yet been billed is covered in unbilled revenue ageing.

If your ERP posts revenue on billing and you need the trigger rebuilt around delivery events, POD capture and GST timing reports, you can share the requirement with us. Related finance and transport guides are collected in the logistics and supply chain hub.