From the course: Financial Accounting Foundations

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Revenue recognition

Revenue recognition

From the course: Financial Accounting Foundations

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Revenue recognition

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- When does a sale get reported in the books? Let's use a real company example to illustrate the surprising complexity of this question. When Apple sells a person an iPhone, Apple is actually selling a bundle of three different things. First, there's the iPhone itself. Second, with respect to iPhone sales, Apple states that it may, from time to time, provide future unspecified software upgrades and features free of charge to customers. Third, Apple provides what it calls undelivered non-software services, which are extended warranty services on the hardware device itself. When a customer pays, say $600 to Apple for an iPhone, that customer is buying a bundle of goods and services. And some of those services won't be delivered for several years. The accounting question, the revenue recognition question, is this. When should Apple report the $600 sale? Right now, spread out evenly over some years in the future, some…

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