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Phillips & Apple (Income Statement) - Essay Example
Author : vandervortmax
Finance & Accounting
Pages 6 (1506 words)
There is a big difference between product expense and period expense. Product expense includes all expenses incurred to make the final product ready for sale to the company’s current and prospective customers…
The violation will create distrust among the affected parties. When mistrust crops up, many of the financial statement users will divest their investments in the company or avoid dealing with the fraudulent company. The principle ensures that revenues are recorded in the accounting period that they are earned. To be earned, the products must be sold, to increase understanding between the financial statement preparers and the financial statement users. There are requirements before revenues are recorded for accounting purposes. First, revenue should only be recorded when the service had been rendered to the company’s current and prospective customers. Revenue should only be recorded when someone buys or takes the company’s products and services. The company cannot record a sale of $ 2,500 if no one has agreed to buy the product. Doing so would violate the revenue recognition principle. When a customer pays for the product and receives the product, then the company complies with the revenue recognition principle when the $2,500 amount is entered into the books as a credit to revenue or sales. There must be an exchange between cash that is paid by the customer, an accounts receivable for collectible customer accounts, and the company’s giving the products to the customers. However, companies do allow installment sales. Installment sales comply with the revenue recognition principle because there is a transfer of goods from the company to the customers. ...