Why is revenue recognition a significant issue? How do we determine when revenues are
recorded for accounting purposes
Accrual is the basis for revenue recognition. It means matching income and expenditure that
occurred within a particular accounting period regardless of whether there was actual receipt of
cash or not. The reasons for these is that the profit for that particular period should represent
fairly all the earnings of the time covered in that period in view of the natural dynamic nature of
any business, it’s highly unlikely that all the invoices will have been paid. However, all the
invoices for that particular period should be accounted for to give a true picture of the financial
earnings of the company. (Kieso, D., Weygandt, J., & Warfield, T., 2007) The accrual concept
adopts a system where every entry in the books of accounts is matched with a corresponding
entry. This ensures that there is accountability in every entry and it would be difficult for any
forgery to occur without being detected.(Vance, 2003)
Explain the difference between a product and period expense.
A product is a substance, item or article that has been manufactured or has gone through a
process that has refined for sale. Its normally the end result of a production process, the process
can be natural or chemical. Examples of products are shoes from a shoe factory or bread from a
bakery.
2 Accounting
Period expenses are recognized as the expenses or costs incurred on the income statement during
the period that benefited from the incurred costs. Examples of period expenses are salaries, rent,
administrative and sales expenses for a particular financial period i.e. it can be a yearly, monthly,
weekly or even daily expenses.
Discuss the matching concept as it relates to accounting for revenues and inventory.
Matching concept means matching income and expenditure that occurred within a particular
accounting period regardless of whether there was actual receipt of cash or not. The reasons for
these is that the profit for that particular period should represent fairly all the earnings of the time
covered in that period in view of the natural dynamic nature of any business, it’s highly unlikely
that all the invoices will have been paid. However, all the invoices for that particular period
should be accounted for to give a true picture of the financial earnings of the company. (Kieso,
D., Weygandt, J., & Warfield, T., 2007) For instance all the revenue earned for a particular year
should be entered in that financial period it relates to. Advance payment for goods to be
delivered in future should be deducted because they relate to the following financial period. Also
all the stock or inventory that relates to the financial period should be calculated by taking the
opening stock and deducting the closing to get a net figure for the stock that relates to that
particular period. (Khan, 1993).
The accrual concept adopts a system where every entry in the books of accounts is
matched with a corresponding entry. This ensures that there is accountability in every entry and
it would be difficult for any forgery to occur without being detected.
What accounting conventions do the two companies follow US GAAP or IFRS?
Apple Inc follows US GAAP while Samsung follows IFRS.
3 Accounting
Apple Inc, formerly known as Apple computers was created on 1 st April 1976. The founders
were Steve Jobs and Steve Wozniak who incorporated the company on 3 rd January 1977 and
started its operations with the release of Apple 1 in Cupertino, California, USA. Its founder Steve
resigned from the company in 1985 and later returned in 1996 with his new company NeXT
which was bought and incorporated into Apple computers the same year. These led to the
discoveries of iPod in 2001, iTunes music store in 2003 and later iPhone, iPod Touch, and
currently the iPad. These products catapulted Apple to be the largest publicly traded company
not only in the USA but in the entire world having a market capitalization whose estimated value
is slightly over US$ 600 billion as by the end of September the year 2012.
Samsung Electronics Co. ltd and its subsidiaries manufactures consumer electronics i.e. Mobile
phones, computers, tablets, home theaters, fridges, washing machines, memory cards, medical
equipment and many other products. It was founded in the year 1938 in Korea. Its headquarters
is in Suwon, South Korea.
Locate the income statement for the past two years for both companies. Prepare a table
Comparing five items or more from each statement.
Comparisons between Samsung and Apple for the period 2011 and 2012
Samsung Apple
2011 2012 2011 2012
Revenue 216152.62 263446.24 108249 156508
Gross profit 69242.67 97532.12 43818 68662
Operating Profit 20493.64 38054.19 33790 55241
Profit before Income
Tax
22521.52 39188.65 34205 55763
Net Profit 22521.52 39188.65 25922 41733
www.yahoo,finance
4 Accounting
Comment on the changes from one year to another. Is the company doing better or worse?
Did revenues and expenses increase or decrease?
In the year 2011 the revenues for Samsung were almost twice as much as those of Apple Inc. In
the year 2012, the revenues of Apple Inc. grew by almost 45% while Samsungs revenue grew by
22%.Apple Inc had almost the same amount of Gross Profit as Samsung despite having revenue
that’s twice its own in the year 2011 and 2012 for Apple Inc. Apple Inc total expenses for the
Taxes and Expenses for Apple Inc and Samsung Electronics.
Samsung
2011
Samsung
2012
Apple 2011 Apple
2012
Taxes paid 0 0 8283 14030
Operating Expenses 146909.95 165914.12 64431 87846
Total Expenses 193631.1 224257.59 82327 114775
Year 2012 grew by a margin of 39.5% while Samsungs Total Expenses grew by 16% for the
same period. Total Operating Expenses for Samsung were 85% of the Revenue earned for the
year 2012; While Apple Inc Total Operating Expenses were 73% of the Revenue earned for the
same period. Both companies are doing very well though the expenses of Samsung are a little
higher than those of Apple Inc. (Mocciaro Li Destri, Picone & Minà, 2012)
Comparisons between the Income Statements of Samsung and Apple Inc.
5 Accounting
RevenueGross profitOperating
Profit
Profit
before
Income Tax
Net Profit
0
50000
100000
150000
200000
250000
300000
Samsung 2011
Samsung 2012
Apple 2011
Apple 2012
www.yahoo,finance
Comparisons between the Total Expenses and Taxes paid by Samsung and Apple Inc.
samsung 2011samsung 2012Apple 2011Apple 2012
0
50000
100000
150000
200000
250000
Taxes paid
Operating Expenses
Total Expenses
www.yahoo,finance
Is it easy to discern trends or compare the information from year to year and between the two
companies? Please, comments on both aspects and show some examples.
6 Accounting
It’s not easy if the data is not processed into tables and graphs, but when it has been tabulated it
becomes relative easy to discern the trends or compare the information. For instance, Total
Operating Expenses for Samsung were 85% of the Revenue earned for the year 2012; While
Apple Inc Total Operating Expenses were 73% of the Revenue earned for the same period. The
revenue is showing an increasing trend for both companies as portrayed by the graphs.
References
Kieso, D., Weygandt, J., & Warfield, T., (2007) Intermediate Accounting (12th Ed.). New Jersey:
John Wiley & Sons.
Khan, M. (1993). Theory & Problems in Financial Management. Boston: McGraw Hill
Higher Education.
Vance, D. (2003) Financial analysis and decision making: tools and techniques to solve
financial problems and make effective business decisions. New York: McGraw-Hill.
Mocciaro Li Destri A., Picone P. M. & Minà. (2012) A Bringing Strategy Back into Financial
Systems of Performance Measurement: Integrating EVA and PBC, (Business System Review,
Vol 1, Issue 1. pp.85-.
