Sign Up Now
Get instant access to over 1 million+ study documents
OR
Already registered? click here to login
By creating your account, you agree to our terms of service, privacy policy and student honor code.
Jet Blue Case Study
Will the new revenue standard provide more decision-useful information than prior U.S. GAAP?
Generally speaking, revenue recognition is the process of recording revenue in a company's accounting records. However, there are different ways to approach revenue recognition, and each perspective may slightly alter the way that revenue is recorded. For example, the cash basis approach simply records revenue when cash is received, regardless of when the product or service was actually sold. The accrual basis approach, on the other hand, records revenue when the sale is made, even if cash has not yet been received. There are also hybrid approaches that combine elements of both cash and accrual basis accounting. Ultimately, the most important thing is to be consistent in your accounting methods so that your financial statements accurately reflect the financial health of your business. With that said, there are some important points to consider in the case of Jet Blue and the new revenue standard.
As Deloitte (2021) explains, the core principle of the revenue standard is to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods and services (p. 1). One reason for the revenue recognition principle is to ensure that financial statements provide a true and fair view of an entity's financial position. If revenues were only recognized when cash was received, then entities could manipulate their financial statements by delaying recognition of revenue until they needed it. Thus, Deloitte (2021) adds that significant judgments frequently need to be made when an entity evaluates...…that businesses must consider a number of factors, including the timing of the delivery of goods or services, the completion of any necessary performance obligations, and the amount of risk involved. Yet, making the correct decision is essential in order to provide accurate information to investors and other stakeholdersand that is what the 5-step model is meant to help companies like Jet Blue do.
As a result, the FASBs 5-step model of revenue recognition is a vast improvement over prior US GAAP. Previous accounting practices were often too narrowly focused and resulted in disparate treatment of similar transactions. The new standard provides a more principles-based approach that will result in greater comparability of financial statements across companies. While the transition to the new standard will be challenging for some companies, the long-term benefits are expected to be well…
References
Booth, E., Blankespoor, E., & Foroughi, J. (2017). Jet Blue and the New RevenueRecognition Standard. Stanford Business.
Deloitte. (2021). On the radar: Revenue recognition.
KPMG. (2019). Revenue. IFRS 15 Handbook.
Revenue recognition is a method by which one can determine when certain income can be recognized or considered as revenue. When we say "to recognize" we actually mean to record. This principle is used by several businesses and organizations to ensure that their accounting records are up-to-date and accurate. There are typically three important guidelines for revenue recognition. (Taub, 2011) Revenue is recognized when earned: In this case the earnings process
Revenue recognition is significant because it not only defines to the leaders of the company that the product sold is doing well in its markets but also that the price on the product is comparable to the competition - shown through the return of high premiums and that all expenses to make said product are being received through the sale of these products. "Process of recording revenue, under one of
Revenue Recognition Revenue is a mode of taxation that is charged by the central governing authority for the purpose of generation income for the government. Revenue is charged on various items from the companies or on businesses that are conducted within the jurisdiction of the ruling authority (Bragg, 2010). Revenue generation is a process that is crucial as it touches on the income and profit made by the body that is
Control environment: (i) Insistent accounting policies or practices. (ii) Demands from senior management to augment revenues and earnings (iii) Absence of involvement by the accounting or finance department in transactions or in the supervision of arrangements with distributors. (Practice Alert 98-3 Revenue Recognition Issues) Matters needing special consideration: (i) an alteration in the revenue recognition policy of the company. (ii) Sales terms do not meet the terms with the usual
AUS 2016-08 Analysis The Accounting Standards Update (ASU 2016-08) covers the topic "Revenues from Contracts with Customers". This move was made to bring the FASB standards more in line with IASB standards, as part of the effort to converge US GAAP with IFRS standards. The main provisions of this update are as follows. "An entity should recognize revenue to depict the transfer of promised goods and services to customers in an
Accounting Concepts Revenue Recognition: Its Relevance and Significance In the words of Kimmel, Weygandt and Kieso (2008), "the revenue recognition principle requires that companies recognize revenue in the accounting period in which it is earned." Unlike is the case in the cash basis of accounting, revenue under the accrual accounting basis is recognized on the sale of a certain commodity or the performance of a given service. Under the cash basis