Last September, regulators issued new revenue recognition rules that allow companies to book product and service sales separately–a boost for the balance sheet, but a big accounting hassle. Prior to the new rules, effective 1Q of fiscal 2011, if a company sold a product bundled with a service contract, the revenue was allocated over the length of the service contract. In fact, even companies that offered services for free still had to book revenue from the sale as if it came in over the course of the contract.
For example, because Apple provides free upgrades for its iPhone and Apple TV, it had to recognize the revenue over each product's estimated lifespan, Apple said in a January 10-K/A filing, resulting in up to $17.3 billion in deferred revenue. As an early adopter of the new rules, Apple filed amended returns that hiked its net sales for the years 2007 through 2009 by a total of $11.9 billion.
Apple's accounting is relatively straightforward. What happens when a company's prices vary greatly depending on product and customer, or are negotiated on a case-by-case basis? To comply with the new rules, companies need to set standard policies for allocating revenue.
Continue Reading for Free
Register and gain access to:
- Thought leadership on regulatory changes, economic trends, corporate success stories, and tactical solutions for treasurers, CFOs, risk managers, controllers, and other finance professionals
- Informative weekly newsletter featuring news, analysis, real-world case studies, and other critical content
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the employee benefits and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.