From the course: Running a Profitable Business: Revenue Recognition
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The practical impact
From the course: Running a Profitable Business: Revenue Recognition
The practical impact
- All of this talk about revenue recognition in multiple element transactions may strike you as an interesting but irrelevant theoretical exercise. Not so. Our friends at Apple provide an excellent example of the practical impact of revenue recognition accounting rules. Before 2009, Apple was required to record revenue from its iPhone sales using something called subscription accounting. Under this approach Apple was required to spread the revenue for an iPhone sale for say $600 evenly over the entire life of the transaction. As mentioned previously, because each iPhone was accompanied by a promise of free future software upgrades, the iPhone sale was not a one and done thing. With a four year expected life of an iPhone, Apple would only get to recognize $150 of iPhone revenue per year, for a phone that had been sold and delivered to a customer years before. In 2009 the accounting rules were changed, to those that we have described. The revenue for the different elements of the iPhone…
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