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Vitamix Revenue Recognition

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Vitamix Revenue Recognition – “Special Cases”

Proper revenue recognition is important in because it has a direct impact on quarterly income statements, incentive calculations, investor confidence, and perception of an organizations financial health. The scandals at Enron and WorldCom illustrate how important properly recognize revenue is to the financial integrity of a company and how abuse can be extremely dangerous. (Labaton, 2006) To maintain consistency across organizations, the Securities and Exchange Commission (SEC) relies on the standards published by the Financial Accounting Standards Board (FASB) to establish the guidelines for revenue recognition. (FASB, 2011)

Companies can only recognize revenue if it is both realized and earned. In many situations, this clearly takes place when the company delivers the product and receives payment. However, there are some cases when organizations physically deliver a product but do not immediately recognize the revenue. In addition, there is a case when companies do not deliver a physical product but need to recognize revenue.

We will explore how Vitamix, a manufacture of high performance premium blenders, recognizes revenue in the following special cases: Extended Warranty Sales, Household Show Consignment Sales, and Foodservice Test & Evaluation Sales. For each of these, we will explain the transaction and explore the revenue recognition logic that is associated with each.

Extended Warranty Sales

Overview

Vitamix customers are able to purchase extended warranty plans that extend their factory warranty from 7 year and additional 3 years for a total of 10 years of warranty coverage. They can purchase this product when the initially purchase the machine or at any time during the...

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...e product shipped, however the right of return by the customer changes this. Vitamix must take into account the probability and possibility that the customer may return a percentage of the product in the event that the sales event does not perform as estimated. To account for this, they create a returns allowance at the time of invoicing to account for the right of return as a percentage of the sale. This net revenue is then an accurate account of the realized and earned revenue. (Connors, 2011)

Works Cited

Connors, R. (2011, October 4). Corporate Controller. (P. Sems, Interviewer)

FASB. (2011, October 6). FASB Facts About FASB. Retrieved from FASB Website: http://www.fasb.org/facts/

Labaton, S. (2006, December 17). Accounting Scandals on Wall Street - Enron - WorldCom. Retrieved from NYTimes.com: http://www.nytimes.com/2006/12/17/weekinreview/17labaton.html
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