Moneyzine
Contents
/Investment Guides /Special Sales Agreements

Special Sales Agreements

Moneyzine Editor
Author: 
Moneyzine Editor
2 mins
September 21st, 2023
Advertiser Disclosure

Definition

The term special sales agreements refers to situations where legal transfer of ownership does not align with the economic risk of ownership. The three most common forms of these special sales agreements include installment sales, merchandise with high rates of return, and buyback agreements.

Explanation

Generally, when the legal title to merchandise passes from the seller to buyer, the value of that item is removed from the seller's inventory. There are occasions whereby the economic value of ownership and legal title are not aligned. For example, the title passes to the buyer, but the seller remains economically responsible for ownership. Alternatively, the title remains with the seller, but the buyer is economically responsible for ownership. Three common examples of these special sales agreements include:

  • Installment Sales: in this example, the merchandise is purchased over an extended period of time. The legal title to this merchandise remains with the seller, but the buyer is economically responsible. In this example, the seller would remove the merchandise from inventory, even though it retains legal title.

  • High Return Rates: in this next example, the legal title to the merchandise passes from the seller to the buyer, but because the merchandise has a high rate of return and the refund rate on a return is high, the seller remains economically responsible for the merchandise. Even though legal title to the merchandise has passed to the buyer, the seller may elect to reserve a portion of those sales in inventory to account for returns.

  • Buyback Agreements: finally, there can be complex financial transactions that allow one company to sell its merchandise to another, with the promise to repurchase that same merchandise over time. With a buyback agreement, legal title passes to the buyer, but the seller remains economically responsible for the merchandise.

Special sales agreements are of particular concern to accountants, since they can have an impact on the value of a company's inventory. Typically, when legal title to merchandise is passed from seller to buyer, the seller would remove its value from inventory. It does this because economic value of the transaction has passed to the buyer.

Related Terms

inventory, buyback agreements, consigned goods, goods in transit, cost of inventory

Explore Investing Further

Trading has never been easier, thanks to the rise of online platforms that enable you to buy and sell various assets at the click of a button. But with so many options available, it can be challenging to decide which platform is right for you.
Looking for a way to avoid swap fees while trading forex?
Below listed are the small reviews of the top 10 ETF brokers available across the United States.
Our top beginner's pick for copy trading is eToro. Read on for more details, plus seven good alternatives.
Swing trading stocks can be a great way for investors to take advantage of short-term stock market movements and gain significant returns. If you're interested in swing trading, the key to success lies in selecting the right stocks to buy and sell quickly for a profit.
The table below lists the best stock picks under $2, listed on public exchanges.
The table below lists the best stock picks under $1, listed both on public and OTC exchanges.
This section will highlight the best EV-trading penny stocks available in the United States.
The demand for sustainable energy has grown rapidly in recent years. This has resulted in increased scrutiny of the automotive market. As a result, the electric vehicle (EV) industry has made significant advancements.
Intelligent Bio Solutions Inc. is a life sciences company, founded in 2016 with headquarters in New York and is engaged in performing diagnostic tests, real-time monitoring, and non-invasive surgery for its patients. The firm has developed a CoV-2 Biosensor, which can be used in RNA virus detection.
Hour Loop was founded in 2013 with headquarters in Redmond, Washington. It’s an online retailer involved in e-commerce in the United States that hit the public markets on Jan 7th of 2022. The company sells home/garden decor, electronic products, kitchenware, and apparel through walmart.com, amazon.com, and hourloop.com.

Related Content

Biden Or Trump: Who Is Better For The Economy And Stocks?
Yup. This is one of those articles. It's an election year, and here in the U.S., we get to decide which old dude who’s been alive long enough to remember when there were only 48 states in the U.S. will be the leader of the free world.
March 19th, 2024
When it comes to strategic business planning, accounting is front and center, shaping the course of action. At least it should be.
March 14th, 2024
DRIP Brokers: Best Brokers for Dividend Investing for March 2024
Reinvesting dividends could mean compound growth for your portfolio. But reinvesting them manually can be a hassle. This is why you could benefit from a dividend reinvestment plan (DRIP).
March 12th, 2024
How To Invest in Real Estate Without Becoming a Landlord
We all know that in order to build wealth and prepare for retirement, investing is the key. However, it can be hard to figure out what to invest in and how to put your money to good use. One of the most talked about ways to build wealth is owning property and being a landlord to bring in passive income. But what if you don’t want to do that? You can still invest in real estate!
March 6th, 2024
Investing In Nature: The Closest You'll Get To Your Money Growing On Trees
ESG (Environmental, Social, and Governance) has become a polluted word for many traders and investors - but that doesn't mean it's going completely away. Nor does that mean you can't profit from nature or sustainable practices. But there are some opportunities in the regenerative ag, conservation, and green real estate spaces.
February 29th, 2024

Contributors

Moneyzine 2024. All Rights Reserved.