Income Statement MD2
Income Statement MD2
In the recent times, the most efficient mean of measuring a business's strength is the revenue. The revenues are considered to be most critical as the profits and the potential to increase the equity rely on the revenues. Due to the fact the businesses need to attain a proper method of managing the revenue recognition. The revenue recognition is sometimes simple for example in the case of a company that sells the products that have non-warranty products. The revenue is recognized when the price of the product can be determined, the collections from the sales are probable, the agreement is evident and the delivery of the product has been made. The process becomes complicated for more complicated businesses that include real estate, entertainment and media and healthcare industries. The process of revenue is very complex and, therefore, many issues coped up. The financials of the businesses had many inconsistencies and due to these issues the FASB worked and developed an Accounting Standard Update in the year 2014. The FASB realized that the standards of revenue recognition needed to be same globally to avoid such inconsistencies. The models and principles given were the Generally Acceptable Accounting Principle and the International Financial Reporting Standards.
The issue of recognizing the revenue has always been an issue in the real world, the principle used to recognize revenues are used to decide accounting period (the period in which the revenues of the business are recognized). The principle illustrates that the revenues are recognized when the amount of revenue is realized (earned) or can be realizable, realized means that the delivery of the products or services has been done). The principle clearly states that the revenues must not be confused about the cash (either received or will be received after some time duration). The revenue recognition is a principle that was designed and developed by merging the accrual accounting and the matching principle. The principle highlights that the cash transactions can be recognized as accrued or deferred revenue. The accrued revenue means that the revenue can be recognized at the time before the cash for the product of service is received and the deferred revenues are the revenues that are recognized only after the cash of the product and service is received.
On the other hand, the cash accounting was the one principle adopted by many organizations that stated that the revenues can only be recognized only when the cash is received.
The product expenses are core to the manufacturing processes of any manufacturer. These expenses include the direct material expenses (the cost of raw material used in the manufacturing processes), direct labor that work directly on producing the goods and the overall manufacturing overheads. The manufacturing overheads also known as the factory overheads include the indirect expenses of production (including the fixed expenses of production, indirect manufacturing expenses and the other expenses of production). These expenses include all the expenses that are incurred for the acquiring and manufacturing the product .
The core difference between the product and period expenses is that these expenses are not necessarily the part of processes involved in the production/ manufacturing process . These costs do not include the cost of inventory, the expenses included are related/ associated to the selling function (expenses related to the selling and the administration expenses). These expenses are directly recorded to the profit and loss account of a business (which is also called the accounting period). The other expenses except the selling and admin expenses are the interest expenses for a particular period of time.
The matching principle states that the expenses incurred in a particular time period must be included in the income statement of the same year in which the revenues are realized (the expenses must be related to the revenues). The matching principle was developed to standardize the accounting treatment of the expenses in the same year of the revenue. Other adjustments of the expenses resulted in non recognized expenses (accrued expenses).
Apple Inc. is an American based multinational technology company, the company designs, manufactures/ develops and sells products that involve electronics, software for computers, other online services and personal computers. The company's headquarter is in Cupertino, California. The best known product of the company is Mac, it includes a line of computers.
The company adopted the Generally Acceptable Accounting Principles (US GAAP) for the purpose of their accounting treatments.
The items used for the analysis are taken from the income statement of the company and the financial values for the year 2012-13 are used. The revenues and the costs increased as the sales and the production increased from year 2012-13. The company was performing well in the market, the net income increase reflects the performance. The percentage increase in the revenue is higher than the increase in the cost of revenues .
Samsung is South-Korean based multinational company that has a headquarter in Samsung Town, Seoul. The company is very large and it includes a numerous affiliated business units and subsidiaries most of the companies use the Samsung brand name. The Samsung company operates as an electronic, engineering, life insurance, heavy industries and also owns a theme park named Samsung Everland. The company also owns the worlds number 15th advertising agency. The organization is known to provide quality products to their customers.
The company adopted the International Financial Reporting Principles (Korean IFRS) for the purpose of their accounting treatments.
Samsung is a large company and therefore the revenues are higher than that of Apple Inc. (Samsung, 2013). The revenues and the cost of revenues increase over the years. The analysis of the Net Income also explains that company is progressing in the market and the future is bright. The company paid highly to the shareholders, this was helpful to attract the potential investors towards the company. The operating expenses of the company also increased this was due to the expansion of the business to new market segments and new markets. The company's management is focusing to provide excellent quality products to the customers and is successful in doing so.
The comparison of the companies reveals that the size of Samsung is the core reason for higher profits, and the growth levels are also higher for Samsung relative to the competitor Apple Inc.
AppleInc. (2013). Form 10-K. Cupertino: Apple Inc.
Mowen, M., Hansen, D., & Heitger, D. (2015). Cornerstones of Managerial Accounting. Boston: Cengage Learning.
Samsung. (2013). 2013 Samsung Electronics Annual Report. Samsung Town: Samsung.