No take backs (View from the book of contemporary accounting issues)

2. Main Idea : rev. recognition
'REVENUE RECOGNITION' :
An accounting principle under (GAAP) that
determines the specific conditions under
which income becomes realized as revenue.
Generally, revenue is recognized only when a
specific critical event has occurred and the
amount of revenue is measurable.

3. Revenue is recognized
on two methods:
Accrual Basis The revenue has been achieved
when the ownership of the item or the origin of the
entity move to the buyer or when the service delivery,
both got their monetary value or not
Cash Basis Revenue is recognized under this basis,
upon receipt of cash regardless of the date of the sale
or delivery or service . It uses this basis, sales by
installments

4. No Take-Back
This rule which holds that revenue
should not be booked on inventory
that is shipped if the customer can
return it at some point in the future

5. Stuffing channel
Give a big discount on a huge load for someone
who is not in need
Once the merchandise is shipped, they record it
as a sale in their books, regardless of whether
the products are paid for or not. This makes
sales appear much higher and to higher
earnings.

6. Supporting Idea : recognize rev. on
lucent
Lucent Technologies : was an American
telecommunications equipment
company headquartered in Murray Hill,
New Jersey, in the United States .

7. Cont...
• it was able to report continued sales
growth.
• It’s investor got a nasty surprise when
distributor returned those goods .

8. • Lucent has announced one financial
disappointment after another this year.
• The company's stock market value has plunged
to about $47 billion from $231 billion a year ago.
• Investors bid shares down $1.31, or 8.5%, to a
52-week low of $14.19 as of 4 p.m. Thursday in
New York Stock Exchange composite trading

9. Supporting Idea :
recognize rev. on Others
Sunbeam Corporation is an Australian home appliance
brand with headquarters in Sydney, New South Wales,
The company began in Australia as a small branch of the
American group
Company practice stuffing the channel on the barbeque
grills and other products, and therefore it is faced with a
problem and was forced to restate its earnings.

10. Investors can be tipped off to potential channel
stuffing by carefully reviewing a company’s
revenue recognition
Through a policy:
 by watching inventory and receivables levels.
 use of cash incentives to encourage distributors
to buy products (as was done at Monsanto)

11. Cont...
Monsanto Company is the largest seeds of
company in the world in terms of high
revenue and large profits and give great
incentives to distributors, but this has been
investigated in incentives paid to distributors,
the company has been calling for documents
by the SEC

12. When sales increase along with receivables:
 that customers are not paying for goods shipped
on credit.
 In the case of increasing the level of inventory:
 are an indicator that customers have all the
goods they need, This higher likelihood of goods
being returned and revenues and income being
restated.

13. Conclusion
Companies that rule applies, so that the
revenues are not recorded unless the goods
have been shipped, and be non-refundable,
so as not to get into the restated earning .
So remember , no take-backs!

14. Subtitle :
The effects of the company's policies
in recording revenue resulting from
the return

15. Reflection
"No take back" the rule correct, if the
company's return became happens
tension, and forced the company to
restate its earnings, and this takes time
and costs.