Join Jim Stice for an in-depth discussion in this video The practical impact, part of Running a Profitable Business: Revenue Recognition.
- All of this talk about revenue recognition…in multiple element transactions…may strike you as an interesting…but irrelevant theoretical exercise.…Not so.…Our friends at Apple provide an excellent example…of the practical impact…of revenue recognition accounting rules.…Before 2009, Apple was required to record revenue…from its iPhone sales…using something called subscription accounting.…Under this approach Apple was required to spread…the revenue for an iPhone sale…for say $600 evenly over the entire life of the transaction.…
As mentioned previously,…because each iPhone was accompanied…by a promise of free future software upgrades,…the iPhone sale was not a one and done thing.…With a four year expected life of an iPhone,…Apple would only get to recognize $150…of iPhone revenue per year,…for a phone that had been sold and delivered…to a customer years before.…In 2009 the accounting rules were changed,…to those that we have described.…The revenue for the different elements…of the iPhone transaction were recognized…
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.
Lynda.com is a PMI Registered Education Provider. This course qualifies for professional development units (PDUs). To view the activity and PDU details for this course, click here.
The PMI Registered Education Provider logo is a registered mark of the Project Management Institute, Inc.
- Defining revenue recognition
- Timing revenue recognition
- Understanding multi-element transactions
- Valuing companies
- Reviewing the great revenue frauds and scandals of history