Posted: May 25th, 2022

Financial standing and accounting practices

Accounting Case

Revenue recognition is a significant issue for several interrelated reasons. Appropriate guidelines for determining when revenue is recognized can keep companies from inflating their profits and boosting their apparent standing as well as establish criteria that makes it more difficult for companies to hide revenue for tax saving purposes or other reasons (Investopedia 2011). Generally speaking, revenues are recognized when payment is received for the rendering of services or provision of goods by a company, though in certain situations other criteria should be met or events occur before revenue is recognized (Investopedia 2011). Companies that extend large amounts of credit with high rates of return might reasonably count revenues at the time of service/good provision and before actual payment is received, for instance, while companies that receive a lot of returns should do just the opposite.

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The matching concept requires that the assets responsible for the creation of recognized revenues be associated with those revenues, such that the cost of producing revenue is clearly observable (Snavely & Horwitz 2011). In other words, the matching concept is a principle that makes it clear which assets are responsible for the earning of what revenue, making it possible to very easily (if simplistically) track a company’s revenue stream through even a fairly cursory examination of its financial documents (Snavely & Horwitz 2011). In this manner, inventories and revenues are paired together, and the effects of changes in one on the other can be more clearly observed by outsiders and responded to by decision makers.

Part II

Apple, Inc. is a leading computer and technology manufacturer headquartered in the United States, while Royal Philips Electronics (better known simply as Philips) is an electronics firm focusing on healthcare, lifestyle, and lighting equipment and appliances (Apple 2011; Philips 2011). The following table and description will briefly examine and compare these two companies in terms of their financial standing and accounting practices as observable in the period stretching from Fiscal Year 2009 to FY 2010. It is significant to note that while Apple uses the U.S. GAAP system in the preparation and presentation of its financial documents, as is typical of U.S. companies, Philips uses the IFRS as a guideline, as does most of Europe and indeed most of the world.

(numbers represent dollars in millions)

Apple 2009

Apple 2010

Phillips 2009

Phillips 2010

Net Sales





Cost of Sale





Gross Margin



Operating expenses

Operating income




Both sales revenue and the cost of sales rose for both companies between 2009 and 2010, though revenues increased at a faster rate and thus both companies posted larger gross margins — both were more profitable from their operations, in other words (Apple 2011; Philips 2011). This does not necessarily mean that both companies are actually more profitable this year when compared to last, as there are many other considerations that need to be taken into account, but as far as their income from direct operations both companies were more successful in 2010 than 2009 (Apple 2011; Philips 2011). The same basic trends are seen when examining the operating income and operating expense lines for both companies: both items are higher in 2010 than 2009, yet income rose more than did expenses (Apple 2011; Philips 2011).

Comparing the information of the two companies side by side also makes it easy to see which is doing more business, and which is potentially more profitable overall. Apple does a much higher volume of business than does Philips, and the margin between its operating income and operating expenses is significantly larger in absolute and relative terms than the same margin for Philips (Apple 2011; Philips 2011). From this brief and cursory examination, though both companies appear to be on an upward trend, Apple still seems to e more profitable.

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