How to Recognize Revenue from an LNG Cargo Sale When Control Passes to the Buyer
Recording LNG revenue and cost of sales when a cargo is sold to an Asian buyer under a long-term SPA.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Trade Receivable (LNG Cargo) | Asset (+) | 45,000,000.00 | - |
| LNG Revenue | Revenue (+) | - | 45,000,000.00 |
| Cost of LNG Sold | Expense (+) | 20,000,000.00 | - |
| LNG Inventory | Asset (-) | - | 20,000,000.00 |
💡 Accountant's Note
LNG cargo sales are recognized when control passes to the buyer — typically at the ship's rail (FOB) or upon delivery (DES). Cargoes are often sold under long-term SPAs with oil-linked price formulas.
Practitioner & Systems Framework
💻 ERP Architecture
LNG is sold in discrete cargo parcels, making revenue recognition more similar to crude oil than pipeline gas. The key revenue recognition question is the delivery terms: FOB (control passes at the loading terminal — seller's risk during voyage is the buyer's) vs. DES/DAP (control passes at the discharge terminal — seller bears shipping risk). LNG prices under long-term SPAs are typically indexed to the Japan Customs-Cleared (JCC) crude price with a slope (e.g., 14% × JCC) and an S-curve. Calculate the final price 2–3 months after delivery when the reference month average is confirmed.
⚠️ Audit Flags
Revenue cut-off is critical for LNG: a cargo loaded 3 days before period-end on FOB terms should be recognized at period-end. Auditors trace the largest LNG cargoes to the Bill of Lading date and confirm the delivery terms. For DES cargoes, the revenue recognition date is the actual delivery to the buyer's regasification terminal — confirmed by the cargo arrival report. LNG pricing formulas may create provisional pricing exposures (see og-price-formula-retroactive-adjustment).
📄 Required Documentation
LNG Sale and Purchase Agreement (SPA) — delivery terms, pricing formula, quantity, and quality specifications, Bill of Lading (FOB) or cargo arrival report (DES), cargo quantity and quality certificate, provisional invoice, final invoice once JCC average is confirmed, LNG inventory valuation at cost of production, and segment revenue reporting.
Automate this entry with the JEH Accounting Suite
Stop doing manual entry. Our VBA-powered ERP automatically generates your ledgers, Trial Balance, and Financial Statements.
No Subscriptions. Own your data.
Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.
Related Journal Entries
Oil & Gas
How to Capitalize the Cost of a 3D Seismic Survey as an Exploration and Evaluation Asset Under IFRS 6
Oil & Gas
How to Capitalize Exploratory Drilling Costs as an E&E Asset Pending Reserve Determination
Oil & Gas