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Accounting ASC - Research Paper Example

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Accounting is a wide scope of study and practice within which are various theories.These theories inform the development of different accounting methodologies These accounting methodologies are usually guided by industry oversight bodies …
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Accounting ASC
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Accounting ASC

An example of these guidelines are those provided by Accounting Standards Codification (ASC) that has within it two methods to recognize revenue for online retailers. One of these methods is the gross method and the other is the net method. Two online retailers that have been used in the examination of these two methods are Amazon and Overstock. ASC guidelines The ASC guidelines recognize two basic accounting methods in the case where one is recognizing revenues. These are the gross method and the net method. The gross method seeks to recognize the total amount of sales that have been made from which any discounts that occur within the time frame opened for discounts are then recorded. These discounts may be accrued in periods. This is where they have occurred in periods that are greater than two accounting periods and where the likely period of payment is not certain. The net method on the other hand records revenue in terms of the net sales that have been made on the product. In the case where later on the customer decides not to take advantage of any discounts that have been offered then this is recorded as income. Gross method of accounting is one that considers the discounts that may be taken and majorly relies on how good a client is in honoring their obligations to pay. The net method on the other hand looks at the discounts that the customer has not taken advantage of and also on how ineffective the customer may be in honoring their obligations to pay. Amazon Amazon recognizes revenue on its books based on the satisfaction of four factors. The recognition is also dependent on the source of the revenue; this is as to whether it is from direct sales or commissions earned. The four factors considered are that there should be considerable evidence that there is the intent of conducting business. The next is that the goods have been delivered or the service has been rendered. The selling price also has to be determinable and fixed. Finally that the collection of the amount is to a certain extent assured. In cases where the price is not easy to determine and Amazon is the primary source of the goods then the net revenue is charged. Subscription fees are recognized as revenues over the life of the subscription. In cases where gift cards have been purchased, they are recognized as revenues when they are used by the customer or when they expire. Amazon is a company that utilizes the net method of revenue recognition. This is evident from the fact that the company recognizes the total revenue that is estimated to stem from any of the transactions that they make netting any promotional discounts that the products may have. This also nets the rebates that the products may attract and the allowance for any costs that may be involved in returning the goods. The recognition of this revenue is also limited to the point where the risk of loss and the title of any product sold have been transferred to the client. Overstock Overstock on the other hand has different revenue recognition procedures. They have a customer loyalty program whose revenue is allocated ratably over the period of ownership of the membership card. The revenue from rewards intended for those who are members are recognized when they take advantage of these rewards, when the rewards expires which is usually ninety days after the expiry of membership and when there is a breakage (when the redemption by the customer of rewards is highly unlikely). There have not been any instances of breakage. The revenues from gift cards are also recognized when they are redeemed or when redemption is highly unlikely from experience. It can be seen ... Read More
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