Join Jim Stice for an in-depth discussion in this video Who cares about revenue recognition?, part of Running a Profitable Business: Revenue Recognition.
- Remember the sequence of seven events with respect…to some equipment sold by hypothetical Kamila Company…for $100,000.…These events occur over the course of almost a year.…Here's the list of seven events.…The recognition of revenue, the reporting of the…$100,000 sale, is just a matter of timing.…Where in the sequence do we report the sale?…We aren't discussing whether the sale should be reported…or not, we are just talking about when the sale…should be reported.…So, who cares?…If the sale will eventually be reported,…who cares whether it's reported now or later?…Well to put it simply, everyone cares.…
Here are three examples to illustrate why people care…about revenue recognition,…even when it's just a matter of timing.…First, let's think about a company getting ready to…apply for a loan.…Let's say the Kamila Company is getting ready to apply…for a big loan, and let's assume that Kamila…is a small business.…What do banks look at when making a loan decision…for a small business?…Well the obvious things, such as credit history,…
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