Bausch & Lomb Essay

639 Words Feb 26th, 2011 3 Pages
Bausch & Lomb, Inc. (A)

In the case of Bausch & Lomb, Inc., the company’s leadership style and business strategy led key financial preparers to show revenue on company financial statements when it should not have been recognized. The two main criteria for revenue recognition are: 1) the seller must have substantially performed its obligations to the customer; and 2) the seller must have obtained an asset from the customer that it can reliably measure. If the asset is not cash, the seller must be reasonably certain of converting it into cash. Only when these two criteria are met can the entity then recognize revenue in their financial system.
The sector of Bausch & Lomb, Inc. that was affected by incorrect revenue recognition was
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Bausch & Lomb needed to focus on research and development to create a product in order to compete with Johnson & Johnson’s. A decrease in net sales would make sense because the company would be investing in a new and better product that would take the place of the older lenses and presumably bring in more sales.
Management at Bausch & Lomb was not interested in development. Their first priority was reaching goals, and they set aggressive sales targets and other financial objectives. The sales strategy that was created made achieving these goals impossible. Because the company was trying to get rid of its entire inventory fast, it just made reaching next month’s goal even worse because there was a lesser amount of inventory to sell.
Their new sales strategy was supposed to free up time so that the company could focus their efforts on building their disposable contact lens division while distributors would promote conventional lenses. Essentially, distributors were bullied by Bausch & Lomb. They were told to increase inventories by December 25, and if a distributor did not comply, they would be permanently cut off from doing business with the company.
An issue that arises from this situation is that the distributors might not be able to sell the excess inventory they were forced to purchase. If returning the inventory is possible, Bausch & Lomb would have to record that amount under Accounts Receivable
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