Join Jim Stice for an in-depth discussion in this video At the same time as cash collection, part of Running a Profitable Business: Revenue Recognition.
- Here are the two traditional revenue recognition…criteria that must both be satisfied…before revenue can be recognized.…The seller has to do something, the work,…and the buyer has to do something,…pay or provide a valid promise to pay.…So is it okay to recognize revenue…before the cash is collected?…Well yes, if the buyer has provided a valid promise to pay.…This is just an ordinary credit sale.…The customer buys now and pays later.…So let's talk about credit sales for just a moment.…
Selling on credit is a marketing technique;…providing a service to customers…to entice more customers to buy.…Companies sell on credit to the…extent that the increase in sales…justifies the increased bookkeeping, bad debt, and…carrying costs associated with credit sales.…Here's an example, almost all of…Boeing's sales are credit sales.…Almost all of McDonald's sales are cash sales.…But why does Boeing sell on credit,…and why doesn't McDonald's sell on credit?…Now remember for the seller a credit card sale…is the functional equivalent of a cash sale,…
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