Apple Inc

Topics: IPhone, App Store, Apple Inc. Pages: 2 (540 words) Published: September 22, 2013
CASE: Accounting for the iPhone at Apple Inc.

The non-GAAP numbers of Apple Inc. reflect its economics better. Because, in the existing method of accounting, revenue and cost of goods sold are spread over the lifetime of the product (expected 24-months), while the costs incurred for engineering, sales, marketing and warranty are recorded immediately. This accurate recording of expenses while recognizing only a part of the cost of goods sold thus showed reduced margins. While this did not affect the cash flow of the business, it affected the periodic profits that the company was reflecting which was just a fraction of the actual profits that the company made. As these deferred revenues were mounting with increased sales turnover, the differences in actual profits for the period and reported profits (one quarter at a time, due to subscription accounting) were mounting too. Given that its sales were exponential, these small fractions of deferred revenue didn't sum up at the same rate as the sales, which would have otherwise given Apple Inc an edge in the average investor’s priorities. This affected the average investor since he was unable to see the entire profits that the company was making and hence appreciate and predict its actual performance in the future. He was unable to evaluate effectively the holistic performance of the company. Having accurate information about Apple where Apple recognized its revenues immediately upon sale, its growth would have been visible, stock prices would have gone up dramatically in conjunction with the rise in sales.  

For Apple Inc., it would matter positively if FASB changed the rules of revenue recognition for smartphones. Although phones are not intended to be the primary goods sold for Apple (Mac is), unlike what it expected, the phone sales were on the rise and the company found that downloading programs and apps was very high by phone customers than Mac. This was largely because of the free upgrades given to iPhone...
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