Accounting
Revenue recognition:
The recognition of revenue is an important aspect because they dictate the financial position of a company. Under this principle, the revenues are recognised in the period whether or not they are paid up in the same time. The transaction that raises the revenue is recognised as the driver of the revenue. In that case, once the transaction occurs, the revenue is recognised. This means that the transaction for delivery of services or goods leads to the revenue falling due immediately. The revenue is recognised once the product is delivered. The arrival of the revenue is assumed to be at that instance when the product is in the hands of the purchaser (Walter, 2011). This is rational because the revenue described is subject to prevailing prices at the time of sale of the product in question. The revenue may not be realised in cash immediately because the consumer may not pay up immediately. Even if the consumer does not pay up during the current accounting period, he/she still owes the company a definite amount. The offset in cash is balanced by the double entry of the same figure in the debtors’ accounts. This makes it necessary to recognise revenues once they are earned (Walter, 2011).
Revenue recording:
The recording of revenue is done under the accrual principle of accounting. The accrual principle dictates that revenues are recorded regardless of their cash repercussions. The recording of revenues arising from production in a certain period helps in analysing the performance of a firm during the given amount of time. The accrual concept is therefore more logical than the cash concept. The cash concept may be misleading because the company may receive money from previous debtors and decide to recognise sales in that period. This portrays a false picture of healthy sales in the accounting period in which the revenues are recorded. The need to avoid this trap necessitates the accrual accounting method (SEC, 2007).
Product expense and period expense:
Period expenses are expenses that are attributable to the running of the firm in a certain period given the incurred expenses. The period costs are inclusive of such costs as administration. These costs are recognised on a periodical basis. The period costs normally are accrued to the period because they are not based on any tangible basis. The apportionment and absorption of these costs is normally different. They are not attributable to a given specific sale or purchase. They cannot be capitalised and therefore can only be recognised as running experiences to a given period (Walter, 2011).
Product expenses are expenses that can be attributed to a certain product. These may include such items as carriage inwards as well as legal fees. The expense are included as part of the cost of the requisite products for purposes of accounting. This eases the treatment because they arise directly out of the procurement of the product. These costs normally apply to the product in such a way that they could not have been incurred had the product not been purchased. This leaves a clearer reason for them to be included as cost of the product. Carriage outwards is normally charged as an after sales service and not added to the cost of goods sold. This makes it a general expense.
Matching concept:
This concept relates the revenues recognised as a part of the income to the expenses directly attributable. In this case, the revenues are calculated to highlight the expenses that went into their realisation. This matching of the costs to the revenues they helped generate is called the matching concept. This is the case for gross profit for instance. It is realised as the sales revenues less the cost of goods sold, and carriage inwards.
Accounting conventions:
The Phillips Company uses the international financial reporting standards exclusively for purposes of its reports. The company used to apply the US GAAP but discontinued this practise terminally. The Apple Company on the other hand uses the US GAAP accounting standards. This is in keeping with the law since it happens to be an American company.
Auditing standards:
The auditing standards for the Apple Company are subject to the legislation of the USA because the company falls in the domicile of the USA. The laws regarding to the auditing of public corporations and limited liability companies are applied in accordance with the United States Certified Public Accountancy practice. The auditing is required to be done annually by a competent auditor. The auditing is carried out for all reported financial statements. The statements in question are the reported financial reports (SEC, 2007).
The Philips company uses the auditing standards of European auditing practise recognises the use of auditing practises that show the company’s position per year. The auditing practise is to assess the competence of internal auditor and determine their reliability.
Comparison:
Cash in Millions
2012
2011
Net income from operating activities
41,720
27,100
Cash used in investing activities
(43,914)
(27,283)
Cash from financing activities
324
1,013
Retrieved from: http://investor.apple.com/
His trend shows that Apple Company spent more on operations in the year 2012 but only cutting down on the revenue from financing activities. The returns from financing in 2011 were more lucrative. The investments made in 2012 re much more.
Cash in millions
2010
2011
Operating activities
2,080
(269)
Net income
1,452
(1,291)
Phillips encountered a good year in 2010 but made huge losses in the year 2011 as the data shows.
References:
Walter, L.M. (2011). Principles of Accounting: A Complete Online Text, chapter 3.
Retrieved from http://www.principlesofaccounting.com/
Apple Investor Relations (n.d.) retrieved from http://investor.apple.com/
Philips Investor Relations (n.d.) retrieved from http://www.philips.com/about/
investor/index.html
SEC (2007). Beginner's Guide to Financial Statements. Retrieved from http://
www.sec.gov/investor/pubs/begfinstmtguide.htm
