a. Define revenues. Explain how revenues are different from gains. b. Describe what it means for a
Question:
a. Define “revenues.” Explain how revenues are different from “gains.”
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 of Concepts No. 5.
c. Refer to the Revenue Recognition discussion in Note 1. In general, when does Apple recognize revenue? Explain Apple’s four revenue recognition criteria. Do they appear to be aligned with the revenue recognition criteria you described in part b, above?
d. What are multiple-element contracts and why do they pose revenue recognition problems for companies?
e. In general, what incentives do managers have to make self-serving revenue recognition choices?