Financial Income Statements & Recognition
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This research examines the issue of revenue recognition. Revenue recognition is a somewhat misleading broad term to describe an issue that encompasses the timing of the recognition in financial income statements of all items affecting profit and loss. There exist recognized and legitimate reasons for different approaches to the timing revenue and expense recognition across industries; however, in the absence of special cases unique to a particular industry, revenues and expenses are generally expected to be recognized in the financial period in which they are either earned or are incurred. those described above also occur with respect to expense recognition. In order to bolster reported financial performance in a given financial period, a company may elect to recognize expenses incurred in that period in some other period, either past or future. The motivations for such actions are the same as those that motivate a misrecognition of revenue. In such cases, these companies are willing to incur additional the federal income tax liability associated with the higher income because the public perceptions managerial performance will be enhanced or the public trading price of a company's equity shares will be strengthened or any of a number of other motivations or combinations of motives.Why Companies Stray From the Revenue and Cost Recognition Requirements Companies that manipulate revenue and cost recognition do so most often for th
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ls and labor bills, to calculate how much of each must have been used in a particular batch.
When the Hewlett Packard Corporation implemented JIT production procedures, the back flushing technique for apportioning costs was introduced simultaneously as an accounting change. With the anticipated improvements in operating efficiency, Hewlett Packard also anticipated improved earnings reports. Over the long term, this outcome will be realized. In the initial reporting year subsequent to the implementation of the accounting changes associated with JIT procedures, however, the back flushing technique resulted in overstated earnings for the company.
This misrecognition expenses did not serve the investment community well in the short term. Over the long term, however, financial reporting will be more accurate.
In 1992, IBM reported the first annual loss in the company's history; the loss was for 1991. The company reported a net loss for 1991 of $2.8 billion. IBM blamed the loss on the worldwide recession and on intense competition in the computer industry. Revenues dropped to $64.8 billion in 1991 from $69 billion in 1990, and net earnings in 1990 0f $6 billion dropped to the $2.8 billion loss in 1991.
The earnings difference
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Some common words found in the essay are:
Hewlett Packard Corporation, Market Theory, Pensions FAS87, Standards Board, Just in Time JIT, Engineering Corp, RECOGNITION Introduction, Requirements Companies, Stone Webster, FAS87 Pension, efficient market, pension fund, accounting procedures, revenue recognition, profit loss, efficient market based, revenues expenses, theory efficient, financial accounting, market based, accounting change, theory efficient market, financial accounting standards, reflected share prices, recession intense competition,
Approximate Word count = 2245
Approximate Pages = 9 (250 words per page)
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