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Capstone - Assignment #... Something
Transcript of Capstone - Assignment #... Something
Apple recognizes revenue from its hardware and software sales - separate or together.
Apple recognizes revenue when:
-Persuasive evidence of an arrangement exists
-Delivery has occurred
-The sales price is fixed or determinable
-Collection is probable
These are in line with FASB's four criteria of revenue recognition, namely,
A. Define "revenues" - how are they different from "gains"?
Revenues are income from operations - for example, selling your products.
This is an accountant. You will look like him soon.
D. What are multiple-element contracts and why do they pose recognition problems?
Contracts or arrangements involving more than one product in a single event - such as the sale of hardware and software packages, or a cellphone with a contract.
Outlined in ASC 605-25. For Apple, items with multiple components that are often sold separately are bundled.
Difficulty arises in recognizing which products and at what time such products are providing revenue.
B. What does it mean to "recognize" revenue?
Revenue is recognized when the company delivers/performs its goods/services.
Statement of Concepts No. 5 lists four criteria that an item must meet to be recognized as revenue.
The item meets the definition of an element of financial statements.
it has a relevant attribute measurable with sufficient reliability.
the information about it is capable of making a difference in user decisions.
the information is representationally faithful, verifiable, and neutral.
Retrieved from FASB.org
E. What incentives do managers have to make self-serving revenue recognition choices?
Gains are from items outside
of operations. Selling stock,
selling land, etc.
Revenues are first recorded in sales and either accounts receivable or cash. The income statement, balance sheet, statement of cash flows, and the statement of owner's equity (depending on how income is used) are all affected.
What accounts/financial statements are affected by the recognition process?
What does FASB's Statement of Concepts No. 5 say?
Yes, we will lose our hair.
-Managers often receive bonuses for profitability
-Corporate governance measures performance using reported earnings
Common revenue recognition fraud:
-Recording revenues in the current year that occurred in the next fiscal year.
-Recording revenue before the services have been performed or goods delivered.
-Moving goods before a sale is actually finalized.
Andrew Nuttall as a child.
Retrieved from: JournalofAccountancy.com
Wells, Joseph T. (May, 2001). Timing is of the essence.
Journal of Accountancy
. Retrieved from:
Engel, E., Hirst, E., McAnally, M. Cases in Financial
Financial Accounting Standards Board. (2008). Statement
of Financial Accounting Concepts No. 5.
Reporting. Canada: Cambridge Business Publishers, 2012.
-Mobile devices, computers, tablets, etc.