MODULE 2/ Case Assignment 2
ACC201 Financial Accounting/Case 2
29 August 2012
There are three main parts to this case that requires you to prepare and submit a three to five page paper. Please make sure this paper is well organized and covers all of the items below. Part I.
* Why is revenue recognition a significant issue? How do we determine when revenues are recorded for accounting purposes? * Explain the difference between a product and period expense. * Discuss the matching concept as it relates to accounting for revenues and inventory.
Part II. Refer to the latest annual financial statements for the two following companies: Apple: http://investor.apple.com/ and Philips: http://www.philips.com/about/investor/index.html. Generally, this information is found in the Investor Relations area of the website. Clearly identify the companies, the time period, and include the link to the financial statements you are analyzing in your report.
* What accounting conventions do the two companies follow US GAAP or IFRS? * Locate the income statement for the past two years for both companies. Prepare a table comparing five items or more from each statement. * Comment on the changes from one year to another. Is the company doing better or worse? Did revenues and expenses increase or decrease? * Is it easy to discern trends or compare the information from year to year and between the two companies? Please, comments on both aspects and show some examples.
Modular Case Assignment Expectations:
The submission should be 3 to 5 pages and need to include answers to all the questions listed above. Show computations, discuss the results and include references in APA format.
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. For some companies, revenue recognition is range over time as in the installment or time-of-completion system. All costs directly connected with given revenue must be coordinated with that revenue. Some...