Type of paper: Essay

Topic: Taxes, Business, Revenue, Finance, Income, Products, Apple, Steve Jobs

Pages: 4

Words: 1100

Published: 2020/12/21

Income Statement

Revenue Recognition
Revenue recognition remains one of the most important principles of accrual accounting. The principle holds that reporting of revenue must be during the period in which the revenue generation takes place. Such aids in the determination of the accounting period for which the recording of revenue and expenses must occur. According to the general rules of the revenue recognition principle, financial records ought to indicate the revenues once delivery for the exchange of goods and services is complete. In some cases, the payment of goods or services may occur in the same period of their delivery. In other cases, payment of such goods or services may spill over to the next financial period. As per the revenue recognition principle, the reporting of revenue should be for the period of earning the revenue. When a business receives cash that it has not yet earned, it should not record the proceeds as revenue but rather as liability since revenue, in this case, is not yet earned (Revenue Recognition Principle, n.d.).
The revenue recognition principle holds for different types of revenue. Reporting of cash payments for the exchange of goods should be on the date of sale or the delivery date. Reporting of revenues from services rendered should be after the delivery of such services. Additionally, there must also be reporting of revenues earned as a result of borrowing company assets or earnings resulting from the sale of such assets.
There are exceptions, however, to the revenue recognition principle. One of such exceptions involves revenue resulting from sale proceeds of inventory with buyback agreement or return policy. The interpretation, in such a scenario, is that the transaction remains incomplete until after the expiry of the buyback or return period. Another exception involves revenue from long-term contracts. Such transactions take time to complete despite advance cash payments.
There are some cases that require recognition of revenue before making any sales. One such example is in agriculture where the reporting of revenue should be in the harvest periods. Such is because, during that time, there is a constant market for agricultural products as well as fairly stable market prices. Such provisions must exist so as to report revenues before making any sales.

Product and Period Expenses

The classification of costs as either product or period costs depends on their capitalization on production. Product costs are those costs incurred either directly or indirectly in the manufacture of a product. The direct costs, in this case, are representative of raw materials, labor, and packaging costs. The indirect costs represent the overheads. Accounting principles require the equating of expenses to revenues that they generate. As such it is important to report the expenses only after realizing revenue from the sale of the products.
On the contrary, period costs comprise of all other costs other than the product costs. Examples include costs such as; advertising, commissions, marketing, depreciation, administrative, etc. The costs do not relate to the cost of manufacturing the product. Reporting of such costs should, therefore, be in the period in which they occur (Product costs and period costs, n.d.).

Matching Concept

The matching concept is an accounting concept that is only existent in accrual accounting. The principle holds that financial records should match revenues with the costs incurred to generate such revenues. The principle also holds that the reporting of such costs in the income statement should be on the same period as that of earning the revenues (Matching Principle & Concept, n.d.).
Prior accounting methods reported expenses on the income statement in their period of payment without the consideration of the period of generating revenue. As such, there was no recognition of accrued and prepaid expenses. The matching concept defers the reporting of the prepaid expenses to the periods of earning revenues in the future. Likewise, it charges the accrued expenses on the income statement so as to match them with the current revenue periods.
Among the unique accomplishments of the matching concept is the use of depreciation as applies to non-current assets. Depreciation of fixed assets extends over several accounting periods that span the asset’s useful life in generating income for a company. The matching concept sees to it that the depreciation charge on the income statement does not happen as a one-off cost but rather as a match against revenue earned from the asset over different accounting periods. The matching principle, therefore, ensures a balanced representation of consistent financial performance of a company.

Apple vs. Samsung

Apple and Samsung are some of the leading global brands majoring in electronics and technology. Apple had its initial launch in 1976 mainly as a computer company. To date, Apple has supreme products and services that include; Macintosh desktops and laptop computers, phones, iPods, iTunes, and Apple TV. Additionally, Apple develops its software. Apple prepares its consolidated financial statements in conformity with U.S. GAAP (AAPL Income Statement, n.d).
Samsung is an equally important brand with a wide range of electronic appliances and technology. The company, with its base in North Korea, saw its initial establishment in 1983. Samsung has markets all over the world. Currently, the company’s products include; mobile phones, laptops, television sets, desktop and other electronic appliances. Samsung prepares its financial reports using International Financial Reporting Standards (Financial Statements, n.d.).

The following table summarizes five aspects of the income statements for both Apple and Samsung for the years 2013 and 2014.

The computations arise from the data in the financial records of both companies for the years 2013 and 2014. The formulae for the various ratios, however, are as follows:
Gross Margin = ((Net sales - Cost of goods sold) / Net sales) * 100
Profit Margin = (Net income / Net sales) x 100
Earnings per Share = Net income / Average outstanding common shares
Return on Equity = Annual net income / Average stockholders’ equity
Annual sales in the two financial periods indicate that both companies experienced a decline in terms of revenue growth. Samsung had sales revenue declining from $217.24B in 2013 to $195.88B in 2014. Likewise, Apple experienced a revenue decline from $182.8B in 2013 to $170.9B in 2014. The operating income and expenses also declined for both companies in the two financial periods. The profit margins, however, did not experience major changes. Apple managed to increase its net profit margin slightly by 0.06% up from 21.67% in 2013. Samsung, on the other hand, had a net profit margin decline of 2% in 2014.
The financial statements for both companies reveal slow growth rates over the last two years. In such a dynamic and competitive environment, it’s always hard to predict the sales. All in all, Apple’s profitability is extraordinarily higher compared Samsung’s. The financial ratios depict an investment scenario likely to favor Apple investors.


AAPL Income Statement. (n.d.). Retrieved March 16, 2015, from http://www.nasdaq.com/symbol/aapl/financials?query=income-statement
Matching Principle & Concept. (n.d.). Retrieved March 16, 2015, from http://accounting-simplified.com/financial/concepts-and-principles/matching.html
Product costs and period costs. (n.d.). Retrieved March 16, 2015, from http://www.accountingformanagement.org/product-cost-and-period-cost/
Revenue Recognition Principle - Accounting Tools. (n.d.). Retrieved March 16, 2015, from http://www.accountingtools.com/revenue-recognition-principle
SAMSUNG ELECTRONICS CO LTD (005930: Korea SE): Financial Statements. (n.d.). Retrieved March 16, 2015, from http://www.bloomberg.com/research/stocks/financials/financials.asp?ticker=005930:KS

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