Apple Inc vs. Philips: Financial Analysis

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Part 1 Revenue Recognition The revenue recognition principle according to Weygandt, Kimmel and Kieso (2009), "dictates that companies recognize revenue in the accounting period in which it is earned." The reporting of revenue generally affects not only the results of the operations of a given entity but also its financial position. In that regard, the relevance of understanding both the concepts as well as practices of revenue recognition cannot be overstated. In the words of Nikolai, Bazley and Jones (2009), "revenues should be recognized when (1) realization has taken place, and (2) they have been earned." Product and Period Expense Several differences exist between a product expense and a period expense. According to Kinney and Raiborn (2009), product costs are associated with the acquisition/making of a product or the provision of a service that generates an entity's revenues directly. In that regard, product costs include but they are not in any way limited to manufacturing overheads, direct labor and direct materials. Period costs on the other hand are associated with business functions (administration, selling etc.) as opposed to production (Kinney and Raiborn, 2009). Thus unlike product costs, it is not possible to assign period costs to inventory costs or to products. The Matching Concept The matching concept in the opinion of Porter and Norton (2010) basically involves "the association of revenue of a period with all of the costs necessary to generate

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