Revenue Recognition for Mcdonald's Corporation

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REVENUE RECOGNITION MCDONALD 'S CORPORATION

INTRODUCTION
McDonald’s and Burger King have been in competition for over 50 years. Similar companies can choose different revenue recognition methods that can cause them to appear different. This report’s purpose is to explain McDonald’s revenue recognition policies and methods in comparison to Burger King’s.
DISCUSSION FOR ACCOUNTING POLICIES AND METHODS
McDonald’s and Burger King’s revenues mainly consist of two things, sales and franchise fees. The sales they record are by company-operated restaurants. McDonald’s records these sales using a cash basis system. This system means that the accountants record revenues when the company receives cash, and it records expenses when it pays
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CONFORMITY WITH ACCOUNTING CONCEPTS
According to Generally Accepted Accounting Principles (GAAP), an item should meet four criteria to gain recognition as an asset, liability, expense, or in our case, revenue. The item should meet the definition of the financial element and should be measurable, relevant, and reliable. Revenues are inflows of assets of an entity or settlements of its liabilities during the appropriate earning period. The element must also be measurable with sufficient reliability and have relevance in user decisions.
Once the item meets this criteria and the company determines that the item should be recognized, the company must determine when to recognize it. The recognition of revenue depends on two factors: being realized or realizable and being earned. Revenues are realized when a company exchanges assets for cash or claims to cash. Revenues are realizable when assets received can be readily convertible to known amounts of cash or claims to cash. Companies view revenues as earned when the entity has met all of its obligations to the corresponding benefits.
Both McDonald’s and Burger King conform with GAAP in recognizing revenues. McDonald’s and Burger King both record product sales through their company-owned stores on a cash basis. However, they record their services and sales to franchisees on an accrual basis. Although cash basis accounting fails to meet GAAP requirements,
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