# ASC 470-40-05: Debt — Product Financing Arrangements — 05 Overview and Background Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/470/40/#05-overview-and-background) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T00:32:31.270Z to 2026-09-10T00:32:31.270Z Record version: sha256:86b4bf214db67307f9c8273e861c24890109c4809b5d57b4d7dc6cfd69902b74 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 470-40-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/470/40/#05-overview-and-background) SEC content: no ##### [470-40-05-1](https://asc.understandingaccounting.org/asc/470/40/#470-40-05-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:32:31.270Z to 2026-09-10T00:32:31.270Z Record version: sha256:9b969c65bd94ee31f6f95e45587463a95b86ae7ded1381689521b3b3ef682d8c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic establishes guidance for determining whether an arrangement involving the sale of inventory is in substance a financing arrangement. ##### [470-40-05-2](https://asc.understandingaccounting.org/asc/470/40/#470-40-05-2) Pending content: no Source downloaded (UTC): 2026-09-10T00:32:31.270Z to 2026-09-10T00:32:31.270Z Record version: sha256:6c1a8c1fa25764a23aa43dfa1effd520c71500e7288b4a18a90e3b4172c8d9cd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Product financing arrangements](https://asc.understandingaccounting.org/glossary/p/#product-financing-arrangement "A product financing arrangement is a transaction in which an entity sells and agrees to repurchase inventory with the repurchase price equal to the original sale price plus carrying and financing costs, or other similar transactions.") include agreements in which a sponsor (the entity seeking to finance product pending its future use or resale) does any of the following: 1. a Sells the product to another entity (the entity through which the financing flows), and in a related transaction agrees to repurchase the product (or a substantially identical product) 2. b Arranges for another entity to purchase the product on the sponsor's behalf and, in a related transaction, agrees to purchase the product from the other entity 3. c Controls the disposition of the product that has been purchased by another entity in accordance with the arrangements described in either (a) or (b). ##### [470-40-05-3](https://asc.understandingaccounting.org/asc/470/40/#470-40-05-3) Pending content: no Source downloaded (UTC): 2026-09-10T00:32:31.270Z to 2026-09-10T00:32:31.270Z Record version: sha256:ee989b361f452ac1af79cacabaa23412f4f2e8ef26d9a5f9cc432143371e9fab Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In all of the foregoing cases, the sponsor agrees to purchase the product, or processed goods of which the product is a component, from the other entity at specified prices over specified periods or, to the extent that it does not do so, guarantees resale prices to third parties (see paragraph [470-40-15-2(a)(1)](https://asc.understandingaccounting.org/asc/470/40/#470-40-15-2)). The Implementation Guidance in Section 470-40-55 illustrates the arrangement described in (b) of the preceding paragraph. For an arrangement described in (a), see Topic 606 on [revenue](https://asc.understandingaccounting.org/glossary/r/#revenue "Inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations.") from [contracts](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") with [customers](https://asc.understandingaccounting.org/glossary/c/#customer "A party that has contracted with an entity to obtain goods or services that are an output of the entity's ordinary activities in exchange for consideration.") for guidance on repurchase agreements in paragraphs [606-10-55-66 through 55-78](https://asc.understandingaccounting.org/asc/606/10/#606-10-55-66) and an illustration on repurchase agreements in Example 62, Case A, paragraphs [606-10-55-401 through 55-404](https://asc.understandingaccounting.org/asc/606/10/#606-10-55-401) . ##### [470-40-05-4](https://asc.understandingaccounting.org/asc/470/40/#470-40-05-4) Pending content: no Source downloaded (UTC): 2026-09-10T00:32:31.270Z to 2026-09-10T00:32:31.270Z Record version: sha256:d21408e8c5f94b8952174e7d37ee18d1fba35183fc5de8f000bd90e38cccbf6a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Other characteristics that commonly exist in product financing arrangements but that are not necessarily present in all such arrangements include the following: 1. a The entity that purchases the product from the sponsor or purchases it directly from a third party on behalf of the sponsor was established expressly for that purpose or is an existing trust, nonbusiness entity, or credit grantor. 2. b The product covered by the financing arrangement is to be used or sold by the sponsor, although a portion may be sold by the other entity directly to third parties. 3. c The product covered by the financing arrangement is stored on the sponsor's premises. 4. d The debt of the entity that purchases the product being financed is guaranteed by the sponsor. ##### [470-40-05-5](https://asc.understandingaccounting.org/asc/470/40/#470-40-05-5) Pending content: no Source downloaded (UTC): 2026-09-10T00:32:31.270Z to 2026-09-10T00:32:31.270Z Record version: sha256:99135683640b1edcbd26f28fc35880291bca296f31c07195d0ec16a1df3904b1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following are similarities between a sponsor's rights and obligations under a product financing arrangement and a purchaser's rights and obligations under an [unconditional purchase obligation](https://asc.understandingaccounting.org/glossary/u/#unconditional-purchase-obligation "An obligation to transfer funds in the future for fixed or minimum amounts or quantities of goods or services at fixed or minimum prices (for example, as in take-or-pay contracts or throughput contracts).") (see Topic 440): 1. a Both the sponsor and the purchaser obtain probable future economic benefits from the assured source of product. 2. b Both are obligated to make future cash payments to the other party to the agreement. ##### [470-40-05-6](https://asc.understandingaccounting.org/asc/470/40/#470-40-05-6) Pending content: no Source downloaded (UTC): 2026-09-10T00:32:31.270Z to 2026-09-10T00:32:31.270Z Record version: sha256:242037841a5524f4da9fd53163c96fea21bcd8a1a0893683b69f5b7720b78600 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Beyond those similarities, however, there is a substantial difference in the related accounting issues. Under a product financing arrangement, the product already exists and the other entity's purchase cost is known.