Revenue Recognition and the Film Industry
According to the revenue recognition principle “Revenue is to be realized when it is earned and when reasonable certainty as to the collectability of payment from the customer exists. The objective is to recognize revenue in the period or periods in which the activity or activities that generate that revenue occur.” (Bloom, 2014) Two ways that revenue is recognized are the cash basis and the accrual basis. Under the cash basis, revenue is recognized when cash is received no matter when goods or services are sold. Under the accrual basis, income and expenses are recognized at the time they are earned or incurred, regardless of when cash changes hands.
The film and media industry have one of the more
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A new proposal has been made to the Contracts with Customers areas of revenue recognition by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). The proposed revenue recognition standard provides a single, comprehensive model as well as structure for addressing revenue issues. The goal is to provide consistent principles, regardless of the industry. The new standard will require companies to make more estimates and to use their best judgement. It also expands the current disclosure requirements that are designed to improve information concerning timing. (Yeaton, 2015) The new standards will be a marked improvement on the old …show more content…
Management will need to exercise significant judgement including those related to performance obligations and allocation of revenue to each obligation. In regards to the new disclosure requirements, entities will have to gather and track information they may not have previously monitored. Because the proposed guidance may change the amount and timing of revenue recognition for entities that maintain their books and records under GAAP or IFRS, they may have cash tax implications. (Deloitte,
Movies today are extremely expensive to make and are typically financed through either film studio contracts or from investors willing to take a risk. In order to be successful, movies need to be marketed and distributed either under contract by the film studios or by companies that specialize in such services. The aspects of financing, marketing and distribution of films have changed between the studio and independent systems over the years as the evolution of the film industry took place.
The amount of the sales should also be fixed and determinable. The principle of revenue recognition also assumes that cash will be collected in a timely manner. This means that upon receiving payment for goods or service revenue should be recorded and in the case of prepaid expense revenue is recognized when it is earned. For example you have a year prepayment of rent each month and when the rent becomes due you will debit your rent account and credit your prepaid rent account, because then the rental payment would be earned/
The majorities of financial advisers do not have a formal accounting or tax background and thus have some challenges to overcome when reading tax returns of their clients. However they are still asked to help their clients in future planning. Since most accounting is to be done based on compliance with GAAP it would make sense to think that tax accounting should also be done this way, however both the IRS and the courts have stated that compliance with GAAP is of little significance when dealing with the objectives of tax accounting. The objectives of both accounting methods are simply different, because the primary goal of financial accounting is to provide useful information to all stakeholders and the primary goal of the income tax system is the equitable collection of revenue. Because of these differences it can be said that the users of accounting information are different for both methods. The assumption for financial accounting is the going-concern and the tax accounting system ignores this assumption. These differences give us the concept of timing differences and permanent differences. Understanding...
Plunkett, Linda M., and Robert W. Rouse. "Revenue Recognition and the Bausch and Lomb Case." CPA Journal Sept. 1998: n. pag. CPA Journal. Web. 16 May 2014.
Include as discussion of the topic, subtopics, sections and subsections in your answer. The new Codification does not change GAAP, but all existing ...
FASB Codification. Digital image. FASB Accounting Standards Codification Professional View. FASB. Web. 28 Nov. 2010. .
This accounting principle requires companies to use the accrual basis of accounting. The accounting method under which revenues are recognized on the income statement when they are earned (rather than when the cash is received). The balance sheet is also affected at the time of the revenues by either an increase in Cash (if the service or sale was for cash), an increase in Accounts Receivable (if the service was performed on credit), or a decrease in Unearned Revenues (if the service was performed after the customer had paid in advance for the service).
To counter this problem, computer assisted audit techniques have been developed. These systems are able to provide a more in depth analysis of the utilized billing systems. Computer assisted audit techniques also enable highly efficient assessment of transactions. By utilizing this system, an auditor could gain a clearer picture of the revenue reporting mechanisms that are being utilized by the business office. Once the information is derived, however, its interpretation, while simpler, will still require an individual that is knowledgeable in regard to the revenue cycle
Financial Accounting Standards Board. (1985). Statement of Financial Accounting Standards No. 86. Norwalk. Retrieved April 7, 2014, from http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175820922177&blobheader=application%2Fpdf&blobheadername2=Content-Length&blobheadername1=Content-Disposition&blobheadervalue2=189998&blobheadervalue1=filename%3Dfas86.pdf&blobcol=url
For example, the Revenue and Expense Recognition Principle, in which companies recognize revenues and expenses in the period of time when these are earned, these are the basis of Accrual Accounting. Another important concept considered is the Cash-Basis in Accounting, in which companies should recognize revenue once cash is taken and expense when cash is paid, but this is not always accepted. After analyzing both sides (the owners and the players), and considering the two versions of Income Statement we can realize that they agree in many points but the dispute is fundamentally in the following
The motion picture industry is just like any other industry and to be successful it must turn a profit on the movies it creates and produces. Everyone loves movies and the motion picture industry does everything in its power to produce movies that will bring in millions of dollars in profits. The motion picture industry has created high grossing movies such as Spider-Man 3 with a total gross of $336,530,303 as well as flops such as Sea Monsters: A Prehistoric Adventure, which only brought in $23,746,066. Diving into descriptive statistics we are able to compare the 5-number summary, mean, mode, range, and standard deviation for the opening gross, total gross, theaters, and number of weeks for the 100 item sample taken from the 300-400 movies produced.
Albrecht, W. S., Stice, J. D., Stice, E. K., & Skousen, k. F. (2002). Accounting Concepts and Applications. Cincinnati: South-Western.
Stair, R.M., Reynolds, G.W., Gelinas, J.U. Jr., Sutton, S.G., Hunton, J.E., Albright, S.C., Winston, W.L. & Zappe, C. (2007) Accounting Information Systems and Financial Modelling, Thomson, South Melbourne, Victoria, Australia.
FASB Statement of Financial Accounting Concepts (CON) 5, Recognition and Measurement in Financial Statements of Business Enterprises, set forth the historic guiding principle to revenue recognition. Pursuant to paragraph 83, for revenue to be recognized it must be (a) realized or realizable and (b) earned. Revenues are “realized” when products, goods, services, or other assets are exchanged for cash or claims to cash. They are “realizable” when related assets received or held are readily convertible to known amounts of cash or claims of cash. Revenue is “earned” when an entity has “substantially accomplished what it must do to be entitled to the benefits represented by the revenues.” SEC Staff Accounting Bulleting (SAB) 104, Revenue Recognition issued in December 2003 provided additional guidance to when revenue is realized or realizable and earned setting forth four basic criteria: (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, and (4) collectibility is reasonable assured.
One of the most debatable topics in the accounting industry today is the extent in which we should make the financial statements understandable to the general population. The FASB currently gears its reporting standards toward...