While visiting a client, you hear employees arguing about the accounting for sales returns.  The Sales Manager believes that granting more generous return provisions can give the company a competitive edge and increase sales revenue.  The Controller cautions that, depending on the terms granted, loose return provisions might lead to non-GAA revenue recognition.  The company CFO breaks in and asks you to research the issue and provide an authoritative answer.  Of specific concern to him are:

1. What is meant by “revenue recognition?” Are there requirements that must be met?
2. What is the authoritative literature addressing revenue recognition when the right of return exists?
3. What is meant by “right of return”? What is meant by “Bill and Hold”?
4. How should the organization account for a transaction when there is a right of return?
5. When goods are sold on a bill-and-hold basis, what conditions must be met to recognize revenue upon receipt of the order? Are there special rules?