Article notes for AFM101 final.docx

5 Pages

Accounting & Financial Management
Course Code
AFM 101
Donna Psutka

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Chapter 7 Tesla Wants you to Know about its Strict Revenue Recognition Tesla recorded 4900 sales of new Model S sedans 400 more than it expectedDespite this Tesla delivered even more than 4900 carsTesla does not record more than 4900 because of very strict and high standard of revenue recognitionRevenue recognition is a bit more complicated for selling servicesTypically revenue recognition is easier for auto manufacturers but Tesla is exception because it does not have dealerssells directly to customerRevenue is not always recorded after products are delivered and paid for pushed back if paperwork has any small errors at allFrom quarterly results statement this disclosure is good because of 2 reasonsTells people that sales are even better than they already lookTells people that Tesla has very strict accounting Revenue Recognition Leading Cause of Restatements Of 108 restatements in 2011 and 2012 255 was the median number of days it took for US public companies to file restatements of financial resultsLongest was 1184 days shortest was 23 daysLonger usually involved restatements related to stock compensation and income taxestax audit triggers the restatementShorter issues related to goodwill and receivablesMost frequent explanations of restatements revenuerecognition accounting and income taxesLess frequent but more than a third of the time triggered by small errors reversing credit and debit balances etcMost dont give a reason for restatement not a thing to brag aboutCauses of restatement from most common to least management identified issue comments from SEC division of corporation finance external auditor uncovered issue How to Account for a Virtual Good Virtual goodsclothing food tools or powers sold in online or social media networks and games should be treated as a service instead of a sale of a good says Brad SkinnerVirtual goods are provided over a time period so should be treated like a digital music or books sold onlineRecognition period could be associated with expected life of game user or virtual goodSkinner wants companies to show more specifics and disclose more of how virtual goods are purchased virtual currency prepaid player balance traditional purchase methodAlso disclose processing fees by the platform it uses to sell the goods any legal or regulatory requirements for refunds Chapter 8
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