Acc301

For this case assignment, I needed to discuss why is revenue recognition a significant issues and how do we determine when revenues are recorded for accounting purposes. Also to be able explain the difference between a product and period expense. Also I will discuss the matching concept as it relates to accounting for revenues and inventory. Lastly, analyze the latest annual financial statements for the following companies: Apple and Phillips.

First thing I would like to deliberate is, why is revenue recognition a significant issues and how do we determine when revenues are recorded for accounting purposes. Determining and reporting revenues are among the most critical concerns in financial reporting. Without a doubt, the timing of revenue recognition has significant impact both the top and bottom lines of the income statement as well as the balance sheet. Such timing can have effects on share prices as stockholders differentiate the actual results with analysts’ predictions. Additionally, the classification and acknowledgement of certain elements related to revenue activities can affect the clarification of financial statements.

Revenue recognition becomes a major concern as companies attempt to meet market expectations. Many corporations conclude last-minute deals to reach their revenue targets and sustain revenue development. Revenue should be reported when it is earned, or in cash accounting, when the cash payment is made. This helps to determine the accounting period or the period of time in which revenue and expenses must be recorded. Universal rules in the revenue recognition principle are the revenues are reported as soon as the goods or services being offered in exchange for payment have been finalized. For most businesses, recognition of revenue is based on when the revenue has been realized, that is, when a price has been agreed with the purchaser and the seller has completed all obligations. Few businesses rely on collection or receipt of payment....