Read the following discussion and give response:

Lookhere.com and Stopin.com should be allowed to recognize revenue in this situation. Revenue as described in our book is defined as inflows or other enhancements of assets of an entity or settlement of its liabilities resulting from ongoing or central operations. It is recognize when the following criteria is met. Delivery is complete, collection is probable, there is persuasive evidence of arrangement, and the price can be determined. Based on what we know, revenue can be recognized because it meets the criteria to do so although some analysts may have an argument about the method in which these forms of internet based companies record and recognize revenue.

Presumably, revenue is recognized when the content is delivered and/or the advertisement has been clicked on. Therefore, these companies want to maximize the amount of revenue recognize as it serves as a good indicator of financial performance and strength. By showing revenue recognized and revenue growth, these companies give off the assumption of future growth and progression. The decision to recognize revenue in this way may be considered a management incentive to inflate revenue growth.

As stated in the text, the income statement is a very important tool when evaluating a company. Due to management incentives like showing revenue growth, an analyst must determine that accounting methods used are best reflecting the economic condition of a company. In this case, it would be appropriate to determine what percentage of revenue is recognized from this advertisement agreement and what percentage is recognized from its own websites. By determining what percentage of revenue comes from where it will provide a clearer picture of the economic condition of the two companies and can help to determine if this recognition of revenue is a management incentive to select and apply accounting principles that are in their best interests but within the Generally Accepted Accounting Principles?

Answer rating: 100% (QA)

I agree with the fact that there should be recognition of revenue by bother the compan... View the full answer