a) -Revenues are inflows of assets or settlements of liabilities or both. Revenues come from activities of the entity’s central operations. -Gains are increases in net assets and from peripheral or incidental transactions of an entity. -The difference between gains and revenues depend to a great extent on the typical activities of a company. For example‚ when McDonald’s sells a hamburger‚ it records the selling price as revenue. However‚ when Mc Donald’s sells land‚ it records any excess of
Premium Revenue Generally Accepted Accounting Principles Double-entry bookkeeping system
Financial Reporting and Analysis – ACG6175 Date: 5/18/09 Revenue Recognition Problems in the Communications Equipment Industry 1 – In late 2000‚ Lucent announced that revenues would be adjusted downwards by $679 million as a result of revenue recognition problems. Yet the firms market capitalization plummeted by $24.7 billion. Why do you think the market reacted so negatively to Lucent’s announcements of the problems? There is usually a grey zone between aggressive accounting‚ which
Premium Balance sheet Generally Accepted Accounting Principles
Revenue-Recognition Problems in the Communications Equipment Industry 1) In late 2000‚ Lucent announced that revenues would be adjusted downwards by $679m as a result of revenue recognition problems. Yet the firm’s market capitalization plummeted by $24.7bn. Why do you think the market reacted so negatively to Lucent’s announcements of the problems? The large drop in market capitalization is probably due to several factors. Historically‚ Lucent had successfully met analysts’ projections for
Premium Balance sheet Generally Accepted Accounting Principles Asset
The issue of revenue recognition practices is an area that has received a lot of attention from regulators. Whenever there is a report of financial restatements or negative earnings‚ regulators pay extra attention to review the financial statements in order to verify that that there are not any indications of financial fraud or that the organization overstepped their boundaries in the area of managed earnings. The reason that regulators have taken a special interest in financial accounting and potential
Premium International Financial Reporting Standards Financial Accounting Standards Board
Statement Four Revenue recognition issues top the list of reasons for financial reporting restatements and one of the methods for creative accounting practices. Table of Contents Table of Contents 1 Introduction 3 Literature Review 4 Revenue recognition 4 Sale of goods 4 Rendering of services 5 Interest‚ royalties‚ and dividends 5 Creative Accounting 5 To meet internal targets 6 Meet external expectations. 6 Provide income smoothing. 6 Taxation 6 Change in management
Premium Revenue International Financial Reporting Standards Financial statements
The revenue recognition principle is a foundation of accrual accounting and one of the main principles of GAAP. The revenue recognition principle is a set of guidelines that helps accountants to identify when a revenue event has taken place and how to appropriately record cash exchanges before‚ during‚ and after the revenue event. According to the revenue recognition principal‚ revenue must (1) be realized or realizable and (2) earned‚ in order to be recognized. According to the SEC revenue is realized
Premium Generally Accepted Accounting Principles Ethics Auditing
own words‚ define "revenues." Explain how revenues are different from "gains." b. Describe what it means for a business to "recognize" revenues. What specific accounts and financial statements are affected by the process of revenue recognition? Describe the revenue recognition criteria outline in the FASB’s Statement of Concepts No. 5. c. Refer to the Revenue Recognition discussion in Note 1. In general‚ when does Apple recognize revenue? Explain Apple’s four revenue recognition criteria. Do they
Premium Apple Inc.
A: The primary criteria the auditor should use in determining revenue to be recognized are: (1): persuasive evidence of an arrangement exists. (2): Delivery has occurred or services have been rendered. (3): The seller’s price to the buyer is fixed or determinable. (4): Collectability is reasonably assured. The most basic principle for revenue recognition is revenue has been realized or realizable and earned. B: (1) a: Multiple deliverable. Does the software and one year internet service has
Premium Sales Marketing Customer service
Jel classification: G34 G32 Keywords: Corporate governance Ownership Earnings informativeness Audit committee a b s t r a c t Policy makers around the world have focused on corporate governance reform since the Asian financial crisis and scandals in the United States such as the Enron debacle. In particular‚ policy makers have focused on the establishment of independent audit committees to improve investor confidence in reported accounting information. In a sample of East Asian companies
Premium Corporate governance
ESTIMATING THE RISK PREMIUM USING HISTORICAL DATA: A CASE OF THE NSE Introduction This study seeks to estimate the risk premium of a company using historical data. Analysts use historical data to estimate the risk premium of a company’s equity. This is because the historical data is readily available from the company’s financial statements and the securities exchanges for example the Nairobi Stock Exchange (NSE) in Kenya. Historical market data can be used to compute average returns and a measure
Premium Risk Financial markets Investment