Join Jim Stice for an in-depth discussion in this video Valuing the components, part of Running a Profitable Business: Revenue Recognition.
- As discussed previously,…when Apple sells a person an iPhone,…Apple is actually selling a bundle…of three different things.…A functiononing iPhone, future software upgrades,…and an extended hardware warranty.…Apple sells this bundle of three items for one price.…This is called a Multiple-Element Transaction.…One contract with more than one valuable good…or service involved.…But for a particular contract…between a buyer and a seller,…the three basic steps that recognizes revenue…are as follows:…First, identify the performance obligations…accepted by the seller.…
Second, for a contract with multiple elements,…like this iPhone transaction that we discussed,…allocate the total contract price…among the different elements or obligations.…And third, recognize revenue…as these different performance obligations are satisfied.…Let's discuss each of these three steps.…First, identify the performance obligations…accepted by the seller.…Delivery of a good or service represents…a distinct performance obligation…if the seller or another company…
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