Revenue recognition in accounting practices entails the different conditions under which a firm recognize and report their revenues. Revenue recognition under the U.S. Generally Accepted Accounting Principles (GAAP) is different from the International Financial Reporting Standards (IFRS). Based on the revenue recognition, the concept between GAAP and IFRS differs. Under the IFRS, the revenue is recognized when there is a probability that any future economic value or benefits will flow to the entity – and that the revenue must be earned prior its recognition (Van der Meulen, Gaeremynck, & Willekens, 2007). GAAP concept of revenue recognition indicates that when revenues are realized they are earned.
Further, GAAP defines revenues as enhancements of assets or inflows or settlement of assets liabilities from rendering a service or producing goods. The IFRS defines income as both gains and revenues and these revenues arise when a firm engages in activities such as sales, rent, royalties, or even dividends (Deloitte, 2018). Generally, it is addressed as the gross inflow of economic related benefits arising from ordinary business activities. Consequently, these benefits are entitled to increase equity held by the company. GAAP adds that revenues are realized and earned when there is persuasive arrangement evidence of a sale, delivery, sale price is determinable, while collectability can be accounted for. IFRS stipulates that, revenues are recognized when a firm transfers the risks associated with a product, the revenue can be measured reliably, and the product has probable economic benefits (Deloitte, 2018).
Delegate your assignment to our experts and they will do the rest.
Apple Inc. adopts the US GAAP in recognizing its revenues. For instance, its net sales (revenues) come from sale of digital content. Software, applications, services, accessories, support contracts, and hardware. It recognizes revenues where there is a persuasive evidence for the product sale, accountable delivery, price was determinable or fixed, and there was probable collection. A product is delivered when it is shipped and all risks are delivered to the customer. However, for online sales, revenues are deferred until the customer receives the products because after sale it may take time to transfer the entire risk to the customer (Apple, 2017). Lastly, for software revenues, industry-based accounting guidance is adopted depending with the nature of sale which may be bundled software with hardware, standalone software, and software upgrade services.
References
Deloitte. (2018). Revenue Recognition: Key Differences between US GAAP and IFRs. Retrieved from https://www.iasplus.com/en-us/standards/ifrs-usgaap/revenue
Van der Meulen, S., Gaeremynck, A., & Willekens, M. (2007). Attribute differences between US GAAP and IFRS earnings: An exploratory study. The International Journal of Accounting , 42 (2), 123-142.
Apple Inc. (2017). Form 10-K. Retrieved from http://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_AAPL_2017. pdf
