Revenue Recognition Policy

Topics: Income statement, Balance sheet, Generally Accepted Accounting Principles Pages: 4 (1245 words) Published: April 5, 2006
Revenue Recognition Policy (Note 2):
A.Sale of goods Revenue Recognition
According to the annual report's financial statement notes, CV Technologies (CVT) recognizes revenue when the title of goods is passed on to the customer, and when reasonable assurance exists regarding the measurement and collection of the consideration given. This means that once CVT ships its goods to their reliable customers, they will account for those goods as sold, and recognize the contract amount as revenue. This policy, although it is slightly aggressive, does adhere to GAAP, but it does require a look at other financial statement accounts for its efficiency and suitability for the company. Since CVT is operating on credit, it is imperative that the clients are accountable for debt payments, and their risk is assessed on a continuous basis. As it states in the annual report, the risk of bad debts is mitigated by proactive credit management policies that include regular monitoring of the debtor's payment history and performance. Furthermore, since revenue is recognized prior to any cash received, the accounts receivable and bad debts expense accounts must be analyzed to assess the appropriateness and effectiveness of this policy. As per the financial statements, CVT exhibits a low ratio of bad debts expenses to accounts receivable, meaning they are collecting on most of their sales, and therefore we can safely assume that their revenue recognition policy is apt for their needs. John doesn't need to be concerned with these accounting policies as they are pretty standard for the industry, and because CVT is very efficient and proactive in the collection process. B.License Revenue and Other Revenue

The license revenue is recognized on an accrual basis and matches revenues and expenses to appropriate periods. This method is very conservative, and preferable by GAAP, and is efficient for CVT's purposes. This revenue is not a large chunk of the total revenue for CVT so the...
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