Join Jim Stice for an in-depth discussion in this video Recognizing revenue, part of Running a Profitable Business: Revenue Recognition.
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- Let's do a simple numerical example…of recognizing revenue in multiple element transaction.…Assume that on January 1 of year one,…Sophie Company, a technology services company,…signs a contract with a customer for $480,000.…Sophie Company collects the entire $480,000…in cash immediately upon signing of the contract…on January 1 of year one.…Sophie Company promises to provide the customer…with hardware, software, installation,…and off-site data backup for two years…starting when installation is complete.…
Now, possible approaches that Sophie Company…might follow in recognizing this $480,000…in revenue are as follows:…First, she could recognize the entire $480,000…as revenue on January 1 of year one,…and you might be tempted to choose this approach…because you are fixated on the collection of cash.…She collects the cash upfront.…But remember that the objective…of a cool accounting in general…and revenue recognition in particular…is to create a measure of the value…of economic activity of the business.…
As of January 1 of year one,…
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