Apple case: Concept questions
Question a: In your own words, define “revenues”. Explain how revenues are different from “gains”.
Revenue is the amount earned by a company by its main activities such as selling merchandise or providing services. revenue covers money that comes into the business but expenses must be removed before the profit is recognized
The primary difference between revenue and gains is that revenue is money generated through primary business activities, whereas gains are achieved through peripheral business activities, such as selling an old machine. A gain is the amount received that is in excess of the asset's carrying amount (book value). For example, if the company receives $3,000 for the machine, and its book value was $600, the company will report a gain of $2,400.
Question b: Describe what it means for a business to “recognize” revenues. What specific accounts and financial statements are affected by the process of revenue recognition? Describe the revenue recognition criteria outline in the FASB’S statement concept No. 5.
Revenue recognition is an accounting principle under GAAP that determines the specific conditions under which revenue is recognized or accounted for. Generally, revenue is recognized only when a specific critical event has occurred and the amount of revenue is measurable; therefore, recognizing revenues for a business means that either the company got money form customers in cash, or has provided the services what the customer already paid in advance, or get the money from customers on credit sales.
The accounts and financial statements are affected by revenue recognition process are
1. Cash accounts for cash transactions
2. Account Receivables for sales on credit
3. Account Payables if the customer paid in advance
4. Deferred Revenue/ Un-earned revenue for services that are yet to provide by the company
Income Statement, Statement of Cash Flows, Statement of Owner’s Equity and...