Task 1_Recognition of Revenue Paper - Running head THE TIMING OF THE RECOGNITION OF REVENUE 1 The Timing of the Recognition of Revenue One reason for

Task 1_Recognition of Revenue Paper - Running head THE...

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Running head: THE TIMING OF THE RECOGNITION OF REVENUE1The Timing of the Recognition of RevenueOne reason for having proper timing of the recognition of revenue is to support the matching principle in accounting. The matching principle in accounting refers to recognizing revenue when it is earned or realized in an accounting period. The expenses associated with the generation of those revenues are matched to those revenues in the same accounting period. This principle is supported by the Financial Accounting Standards Board (FASB) that defines revenueand gains as follows: The recognition of revenue and gains of an entity during a period involves consideration of the following two factors, with sometimes one and sometimes the other being the more important consideration: Being realized or realizable and being earned (FASB, ASC 605-10-25-1). When expenses are applied to revenues it determines the gross profit that is generated by the company for the accounting period. The gross profit determination is used by a company’s management as one measure of performance for the accounting period. Management’s decisionscan impact gross profit so computing this figure helps them determine if they are making the right decisions to maintain profitability in the company. Therefore, properly reporting revenues and expenses in an accounting period ultimately leads to better management decisions to maintaining profitability in a company.In the Entertainment-Casinos industry there are various streams of revenue generated from the operations of the casino. According to the Sustainability Accounting Standards Board (SASB) Casinos & Gaming Research Brief, the global casino and gaming industry generates more than $146 billion in revenue with 70% coming from casino operators (SASB, 2014). Revenues in this industry are primarily generated from gaming activities (table games or slot machines), hotel operations and management, food and beverage sales, and rentals from
THE TIMING OF THE RECOGNITION OF REVENUE2conventions and entertainment venues. The largest casino worldwide in terms of revenue is the Las Vegas Sands Corp. (Statista, 2016). Per its 10-K annual report, the Las Vegas Sands generated net revenues of $11.7 billion in 2015 (SEC EDGAR, 2016). These revenues were generated from the company’s domestic and worldwide operations. With casinos generating revenues of this magnitude, one can see how important the timing of the recognition of revenue is to the industry’s management. Management must know which revenue streams are making money for the casinos and which ones are not to focus their decisions on making corrections to those not generating the expected revenues. Because of the various streams of revenue the casinos produce, it would be difficult to discuss all of these in onepaper. Therefore, for the purpose of this paper, we will focus on the revenues generated from gaming activities, specifically table games and slot machines.

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