Apple Inc vs. Philips: Financial Analysis

B. Describe what it means for a business to “recognize revenues.” What specific amounts 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.

Some of the operating expenses incurred would be selling, general, and administrative; also research, development, and engineering. They are treated as period costs because as they are accrued or incurred, they are allocated for a designated period an labeled as period costs. Two common examples of period costs are Marketing/Selling and Administrative. Such costs usually occur either after the manufacturing stage or outside the factory.

Coverage of revenue recognition in intermediate accounting courses is typically limited to learning and applying the criteria for revenue recognition outlined in the Financial Accounting

Period cost are cost related to selling and administrative expenses. Product cost are costs related to manufacturing of goods. Classifying period cost as product cost will decrease the expenses, thus increase the operating income.

example of revenue: “We recognise revenue when it is realised. By naming it ‘revenue’, it

According to Kimmel, Kieso and Waygandt (2011), "the revenue recognition principle requires that companies recognize revenue in the accounting period in which it is earned." Basically, this means that revenues should be recognized (or in other words recorded) on completion of the process of revenue generation i.e. once revenue has been earned. This is as per the accrual basis of accounting. Essentially, revenue recognition derives its significance from its utilization when it comes to the determination of the specific accounting period in which earnings should be recorded.

Matching principle - the expense, merchandise and other costs, should be matched with the revenue.

Revenue is the gross inflow of economic benefits during the period arising in the ordinary course of activities. Revenue should be recognized when the future economic benefits that will flow to the entity can be measured reliably. The recognition criteria are usually applied separately to each transaction, but sometimes and under specific circumstances, it is necessary to apply the recognition criteria to the separate recognizable parts or of a single transaction in order to reflect the substance of the transaction. In aviation industry, the revenue transaction or events takes a significant period of time in order to complete because of the nature of product delivering against the sum of money. The five‐step revenue recognition process for this transaction are as follows:

4. Matching principle : the business that adopt matching principle can accurately evaluate their pin point financial performance and profitability for a certain time by cancelling the difference in the accounting entry timings.

"Pcs Industry Profile: United States." Pcs Industry Profile: United States (2012): 1-39. Business Source Premier. Web. 8 Oct. 2013.

The accounting practices at Carlton normally permit revenue recognition after the shipment of the computer systems. Peale, Gower and Quill, Carlton’s auditors, are worried about the accounting practices regarding revenue recognition of certain transactions during the

Timing of revenue recognition is a crucial part in revenue recognition. According to US GAAP, revenue should be recognized when it is realized/realizable and earned (FASB, 1984, Para. 83).

Apple, Inc. (formerly known as Apple Computer, Inc.) was incorporated in the State of California in 1977. Apple currently designs, manufactures, and markets a variety of computer and personal electronic products, including Macintosh computers, and the iPod digital music player. AppleÕs key markets are consumers, creative professionals, educational institutions, and business users.

Revenue recognition is an important concept in accounting because it’s used to determine the company’s value, which affects major decisions of investors and management. As well as this, a coherent standard is important as it provides consistency, addresses particular issues and allow for uniform interpretation.

Smartphone market is fast-moving and very high competitive due to intense competition between two big smartphone producers, Apple and Samsung. At the beginning, Apple dominated this market solely by introducing a new innovative type of smartphone by Steve Jobs that has revolutionized people lifestyle and mobile industry. A few years after launching iPhone, a new fast following competitor, Samsung came into this market, and their sales have outperformed Apple from the year 2011 (According to Chart A1 in Appendix). In term of developing their product, Samsung has created its products by following Apple’s technology since the beginning of producing its smartphone, therefore there are many patent lawsuits between them. Since Steve Job passed away, Apple has continued to develop its core competence, which is an innovation of new type of smartphone that could help them to take back their market share from its rival, Samsung. Nonetheless, the competition between Apple and Samsung will still continue intensively in the future.