Accounting Questions While the Rest Centers on

¶ … accounting questions while the rest centers on the characteristics of two certain companies, those being Apple and Philips. Accounting Questions & Answers The first accounting question is why revenue recognition is a significant issue.

Recognizing when revenue comes in, what specific revenue stems from and the exact amount of all of the above is a very vital part of the accounting process because it has a direct correlation and effect on the profit/loss of a company, the income statement, the cash flow statement and, to a lesser extent, the balance sheet.

Revenues are used to defray the costs of the goods/services that were disseminated and they need to be properly measured and accounted for, and in the time period to which they apply, so as to ensure that all of the affected and relevant financial statements reflect what is truly going on and when precisely it happens (McQuaig & Bille, 2008).

Revenues and how they are recorded for accounting purposes comes down to when the revenue comes in, what the revenue stems from and how that number coincides and correlates with the money spent to attain that revenue. Firms must ensure that they accurately track and add up revenue that comes in and it needs to be based on the year and quarter in which it was realized and has to be juxtaposed against when the money behind that revenue was spent. There is not always an immediate return on investment.

A good example would be accounts receivable. All accounts receivable represents is the fact that money is owed to a firm for products or services rendered. It is technically an asset but that does not mean the money will ever make it to the firm, although it usually will (McQuaig & Bille, 2008). The next question asks the author of this response to differentiate between period and product costs. The difference is actually quite simple. A product cost is a cost that is directly tied to the manufacturing of a good.

It can be something quite obvious such as a bolt or individual piece of an item but it can also be something that is indirect such as lubricant or the cost of keeping up a machine that is specific to the item. Regardless, if a cost can be tied directly and solely to an item's manufacture, it is a product cost. A period cost would be anything and everything that is not a product cost. Examples would be the rent for a building or insurance.

Basically, anything that is not directly linkable to an item but yet is a necessary cost for whatever reason is a period cost (McQuaig & Bille, 2008). The next question asks the author of this paper to define what the matching concept means relative to expenses and revenues. Basically, the costs/expenses of making an item have to be realized and parsed out in the same period (month, quarter, etc.) as the period where the revenues for the same item(s) is/are reported.

If a widget costs 20 bucks to make and the widget sells for 30 bucks, then the 20 and the 30 would both be reported in the same quarter. Reporting the 20 in one quarter and the 30 in another would be incorrect. This is necessary so that it is much easier to match and correlate the cost of goods sold and the revenues garnered from those same goods (McQuaig & Bille, 2008). Company Research The next section asks the author of this paper to provide some information about two specific companies.

Those companies shall be Apple and Philips. As for Apple, Apple clearly states in many reports that they use the GAAP accounting standard. As for auditing, Apple explains on their website that the conduct a number of different audits and they ascribe to a number of different standards. They have third-party auditors but they also do internal audits. Their audits include standard audits, process safety assessments and specialized environmental audits. Other different classifications include first-time audits and repeat audits.

They are a member of the Fair Labor Association and they describe a rigorous Supplied Code of Conduct and they also have implemented the Fair Labor Association Workplace Code of Conduct (Apple, 2012). As for Philips, they incorporate some non-GAAP measures and standards into their methodology but they generally follow the GAAP framework and they have done so for the last ten years. As for auditing, the Philips way is very similar to that of Apple.

They execute a blend of internal and external auditing and reporting functions as well as official SEC-related info as well as metrics that are strictly voluntary. As for an analysis of the two companies, the complete balance sheets and income statements for the last three years are included in the appendices and they show two very different, although both successful, companies. Apple is blowing the doors off of the entire industry thus making firms like Microsoft and HP seem like romper room.

Apple is consistently drastically improving their revenue, their profits, they margins….everything is getting better by the year. Some people have expressed that Apple is about to peak out but it certainly hasn't happened yet. Their long-term stock price arc is going up and up (overall) with a stock price that exceeds $500 USD right not. One thing of concern is that while profits are going up and up, so are operating expenses, and at a clip is probably a bit too fast.

As for Philips, the results are a bit more mixed but not bad on the whole. Revenues are flat over the last three years. The last year yielded a slight loss but that loss is more than overrun by the amount of profit in the previous two years, which was nearly eight times as much.

If this was a good economic time from 2009-2011, then these results would not be good but the United States market is still in low gear after the Great Recession so they're actually not doing all that bad. On the whole, Apple is doing better and.