Join Jim Stice for an in-depth discussion in this video After cash collection, part of Running a Profitable Business: Revenue Recognition.
- Both of the two traditional revenue…recognition criteria must be satisfied…before revenue can be recognized.…The seller has to do something, the work,…and the buyer has to do something,…pay, or provide a valid promise to pay.…So, is it okay to recognize revenue…after the cash has been collected,…but before the work has been done?…No. No. No!…You have to have the work done!…Let's consider two examples, airline tickets and gift cards.…First, airline tickets.…Everyone who flies on an airplane…pays in advance.…
Thus, between the time that you pay United Airlines…for your flight, and the time that you…actually fly, United cannot recognize the revenue.…They haven't done the work yet.…They have your cash, but they have…not yet done the work.…So, United must record an obligation…to give you a ride on a plane, for which…you have already paid.…United calls this liability, this obligation,…advance ticket sales.…As of the end of 2014, United reported…this obligation to be 3.7 billion dollars.…
This represents the amount of cash…
But without recognizing revenue, a company can't hope to report any profit. Accordingly, company management is typically under great pressure to recognize revenue as soon as possible. Want to understand these concepts better? Join professors Jim and Kay Stice as they introduce the theory, practice, and implications of revenue recognition. Together they demonstrate how this seemingly innocent accounting topic can turn a reported profit into a reported loss, sometimes with multibillion dollar implications for company values.
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- Defining revenue recognition
- Timing revenue recognition
- Understanding multi-element transactions
- Valuing companies
- Reviewing the great revenue frauds and scandals of history