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
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...
... middle of paper ...
...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)
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
Need Writing Help?
Get feedback on grammar, clarity, concision and logic instantly.Check your paper »
- Introduction Revenue recognition for construction industry is a complex area, now IASB and FASB are trying to work out a comprehensive new accounting standard for revenue recognition. Before they issue the new standard, which is best interest for our client to know current standard and development issues for revenue recognition. This article will introduce how the revenue recognised at present within the construction industry at first. Second the process of new standard development will be discussed.... [tags: Accounting Standards, Exposure Draft]
1506 words (4.3 pages)
- Whenever a product is sold, the seller earns and reports the revenue. However, in the real world such sales transactions are not as straight forward, and the principle of revenue recognition is one that creates the most issues for accountants. Now a days the process of selling has become quite complex. There are many issues and procedures involved. Customers have the option to make payments right away when making the sale, or can choose to make the payment in installments as agreed to in the sales contract.... [tags: Business Finance Accounting]
1701 words (4.9 pages)
- MEMORANDUM Re: Group 2 - Case 2.1 “Software Revenue Recognition: Informix Corporation” Companies following GAAP can manage earnings by simply altering its accounting policy to select those accounting principles that benefit them the most. Entities have a host of reasons for selecting those principles that will paint the rosiest financial picture. Some would argue that the market demands it, as reflected by the stock price punishment for companies that differ by as little as one penny per share from prior estimates.... [tags: essays research papers]
5784 words (16.5 pages)
- Over the last twenty years health care prices for the general public, because of this continuous rise in prices hospitals and health care facilities have given much attention to improving their communication of prices to the public. Most people of the general public are unaware that hospital costs and hospital prices are two different things. Hospital cost is the dollar amount the hospital pays in order to provide patient care. Hospital price is the dollar amount designated to the specific procedures performed in order to provide said “patient care”.... [tags: Business Revenue]
2486 words (7.1 pages)
Cash Basis Accounting Versus Accrual Accounting Method: Matching and Revenue Recognition Principles.
- Introduction To account for profit, businesses have an option of choosing between two methods of record keeping; that is the accrual basis method and the accounting basis method. Using one method throughout accounting period and then changing it at the end while determining profit, might introduce a form of biasness and hence resulting in inaccurate figures. The two methods are completely different in terms of how revenue and expenses are recognized and recorded. As a result, the accounting for profit between the two is also poles apart.... [tags: Business Finance ]
1214 words (3.5 pages)
- Introduction This paper discusses the design and implementation of an image recognition /retrieval system indexed with parameterized color histogram. As the usage of multimedia data has increased in recent years, effective and efficient methods for storing and retrieving multimedia have been required and are being developed. In particular, images are used as important inputs in a variety of areas. The area of content-based image retrieval is a hybrid research area that requires knowledge of both computer vision and of database systems.... [tags: image recognition, query images, color]
1685 words (4.8 pages)
- A. Iris Recognition A large number of iris biometric identification techniques have been developed and there are several literatures available for Iris recognition. Iris recognition combines computer vision pattern recognition,statistics, and the human-machine interface. The iris recognition system involves a number of steps: First, a camera acquires an image of an eye. Next,the iris is located within the image. The annular region of the iris is “unwrapped,” or transformed from raw image coordinates to normalized polar coordinates.... [tags: Voice Recognition, Periocular Biometrics]
1872 words (5.3 pages)
- On-line hand writing character recognition using accelerometers is the basic proto-type for all the latest technologies. This paper presents an accelerometer based hand written digit and hand gesture recognition applications. The recognition process is done by using a tri-axial accelerometer and microcontroller with inbuilt ADC interface. The wireless transmission module is used for sensing and collecting acceleration of hand written and hand gesture trajectories. User can hold the device to write alpha numeric in air without space limitations.... [tags: accelerometer, gesture recognition, IDE]
1980 words (5.7 pages)
- Encounters in Enemies and Recognition An encounter is an unexpected meeting, and we see the leading characters in ‘Enemies’ and ‘Recognition’ having to come to terms with their past and as their encounters occur we see their changing perspective about certain issues surrounding them and how their characters develop from what they are to what they become. In ‘Enemies’ we see this being exercised upon by the leading character Mrs Clara Hansen. The title of the story ‘Enemies’ is in itself a description of what Mrs Hansen has become to her true self, an enemy.... [tags: Enemies Recognition Essays]
3525 words (10.1 pages)
- The proposed method is based on eigenspaces  and it is obtained with the Principal Component Analysis (PCA)  of the vectorized set of three features include WF, FFP, and RFF. Localizing the facial feature points is obtained by a novel algorithm. For this purpose, we briefly review some of the previous methods in this section. 2.1 Face Recognition Using Principal Component Analysis Principal Component Analysis (PCA) is a dimensionality reduction technique based on extracting the desired number of principal components of the multi-dimensional data.... [tags: Face Recognition, Principal Component, Analysis, c]
846 words (2.4 pages)