Join Jim Stice for an in-depth discussion in this video Traditional revenue recognition criteria, part of Running a Profitable Business: Revenue Recognition.
- [Voiceover] Traditionally, revenue has been recognized,…or recorded when two criteria have been met.…First, the selling company has done…what they promised to do.…The work is done, or substantially done,…and second, the selling company has received…from the buying company…a valid promise of payment.…These traditional Revenue Recognition Criteria…acknowledge the two-way nature of any transaction.…The seller has to do something - the work;…and the buyer has to do something - pay,…or provide a valid promise to pay.…Well, let's look at two examples.…
One to illustrate each of these two traditional criteria.…So first, let's talk about…the California State University System.…The California State University System includes…more than 20 campuses, serving over 400,000 students…in California.…These universities typically collect tuition…at the start of the semester,…but the universities don't do the work,…providing educational services,…until the semester progresses.…"The California State University GAP Reporting Manual,"…
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.
- Defining revenue recognition
- Timing revenue recognition
- Understanding multi-element transactions
- Valuing companies
- Reviewing the great revenue frauds and scandals of history