lec10 - Receivables and Revenue Recognition 15.511...

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1 Receivables and Revenue Recognition 15.511 Corporate Accounting Summer 2004 Professor SP Kothari Sloan School of Management Massachusetts Institute of Technology June 22, 2004
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See Intel Corporation’s consolidated balance sheets: December 25, 1999 and December 26, 1998, available at http://www.intel.com (last accessed July 9, 2004).
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3 ALLOWANCE FOR RETURNS If customer has the right to return the product, the seller must estimate the dollar value of returns. Revenue is reported net of the amount expected to be returned. Typically, seller sets up a contra-asset account, Allowance for Returns : • Analogous to Allowance for Doubtful Accounts • When return actually occurs, reduce both Allowance and face value of Accounts Receivable (or Cash) by the invoice amount. • Return has no effect on Net Income, nor on Net Assets, just as Write-off of Uncollectible has no effect on these amounts. • BSE: AR - Allowance for Returns = RE Intel takes a slightly different approach: Deferred Income Liability .
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4 A Quick Look at Intel’s Statements z Revenue recognition. z The company generally recognizes net revenues upon the transfer of title. However, certain of the company's sales are made to distributors under agreements allowing price protection and/or right of return on merchandise unsold by the distributors. Because of frequent sales price reductions and rapid technological obsolescence in the industry, Intel defers recognition of revenues on shipments to distributors until the merchandise is sold by the distributors.
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5 Interpreting Intel’s Revenue Footnote z The company generally recognizes net revenues upon the transfer of title. z means that when products ship to customers, Intel recognizes net sales revenue (net of allowances for bad debts). z However, certain of the company's sales are made to distributors under agreements allowing price protection and/or right of return on merchandise unsold by the distributors. z
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lec10 - Receivables and Revenue Recognition 15.511...

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