Join Jim Stice for an in-depth discussion in this video Channel stuffing, brick shipping, and lying, part of Running a Profitable Business: Revenue Recognition.
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- Ah, where to begin.…In addition to the interesting story of Z Best,…there have been many famous and fun…financial statement frauds involving revenue recognition.…Here are some of my favorites.…Let's start with MiniScribe, shipping bricks.…The MiniScribe case was famous way back,…when I first started teaching accounting.…The revenue recognition fraud plan was simple,…but effective, in the short-term, at least.…MiniScribe manufactured computer disk drives.…Sales started to drop, and the company needed cash.…One source of cash was from its customers,…but MiniScribe couldn't afford to make…all of the disk drives to then ship to its customers,…who would then pay, but MiniScribe officials knew…that customers typically allowed boxes…of shipped disk drives from MiniScribe to sit in inventory,…unopened, until they were needed in production,…so MiniScribe employees filled disk drive boxes with bricks,…and shipped these brick disk drives to customers.…
The customers paid for the bricks, uh, for the disk drives,…and the temporary cash crisis passed.…
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