University of Phoenix
It is crucial for an organization to provide accuracy in their financial statements as these statements provide a basis for a lot of key decisions. Maintaining accuracy is important for all transactions especially those related to the recognition of revenue. The timing of these entries is key to ensuring revenue is recognized in the proper fiscal year. The following memo will present our concerns regarding fourth quarter revenue entries made at Carlton Computers.
To: Carlton Computers
Fr: Peale, Gower & Quill
Subject: Fourth Quarter Earnings
After reviewing the financials and more specifically, the 4th quarter earnings of your organization, I have found some anomalies that cause some concern. Carlton’s earnings seem to reflect an inflation of revenue rather than higher sales and lower costs. I have found many flaws in the revenue recognition policies utilized by your organization. In looking at Elegant Housing and Harvey Industries, the revenue was recognized when the goods were sold on an approval basis. With regard to BTO Computer Leasing and Alation Electronics, the entire value of the bill and hold was added to revenue even know the conditions for bill and hold arrangements were not met. A clearer explanation of what bill and hold is might clarify the issue. This is a form of sales arrangement in which a seller of a good bills the customer but does not ship until a later date. There are certain conditions that must be met in order for the transfer of ownership to occur. They are: payment for the goods, the goods are segregated from all other similar goods by the seller, and that goods are finished and ready for use. The can be a beneficial arrangement for those parties involved if all criteria have been met. No transfer of ownership is possible if criteria have not been met. For financial purposes, this ultimately means that no revenue can be recognized by...