Join Jim Stice for an in-depth discussion in this video Defining revenue recognition, part of Running a Profitable Business: Revenue Recognition.
- When does a sale get reported in the books?…Let's think about hypothetical Kamila Company,…a company that makes and sells industrial equipment.…And let's look at a sequence of seven events in order…with respect to the sale of one piece of equipment…by Kamila to a customer for $100,000.…These events occur over the course of almost a year.…So number 1, The Kamila salesperson…thinks about the customer.…Number 2, the salesperson negotiates with the customer…and eventially receives a formal order.…
Number 3, the construction of the equipment is finished.…Number 4, the equipment is loaded on a truck…and shipped to the customer.…Number 5, the equipment arrives…at the customer's place of business.…Number 6, the equipment is installed, tested,…and formally accepted by the customer.…And number 7, six months after delivery,…the customer pays Kamila cash for the price…of the equipment, $100,000.…The accounting issue is simple.…When should Kamila, the selling company,…report this $100,000 sale in its accounting records?…
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