Income Statement

Income Statement PART 1

Revenue Recognition Significance

Revenue recognition is a significant issue because the many accounting failures have been observed over the years as the concept of revenue recognition was not applied correctly. According to the matching principle, expenses are also recognized during the period when revenues are recognized; therefore revenue recognition is very important as it affects the expense recognition. The correct application of revenue recognition by the firm reflects its actual performance for a particular period (Walther, 2010).

Determination of Revenue Recognition

Revenues are recognized at the time when services were rendered or when the products were sold and delivered. There are two conditions for revenue recognition, the earning process should be complete, and an exchange transaction should take place. For instance, revenues for a motion picture are recognized when the picture is exhibited (Edwards & Hermanson, 2007). Product Expense

Product expenses are the costs that are associated with the manufacturing and acquiring of a product, such as direct labor, direct material and overhead manufacturing. Product costs are usually assigned to the inventory account on the balance sheet. When the product is sold, these costs are released and are known as cost of goods sold or cost of sale.

Period Expense

Period expenses are the costs that cannot be specified to a particular product, such as sales commission costs and rental costs (Edwards & Hermanson, 2007). Usually all other costs than product costs are associated or known as period costs. Therefore, all the selling and administrative costs, marketing expenses, advertising costs, salaries and other nonmanufacturing costs come under period expenses. Matching Principle

The matching principle for revenues and inventory states that: the expenses should be recorded in the same period as when revenues are recognized. Expenses should also be deducted from the revenues during the same accounting period (Walther, 2010).

PART 2

Accounting Conventions used by Apple and Samsung

Apple is using GAAP (Apple.com, 2013); while Samsung is using IFRS (Samsung.com, 2013). Income Statement Items

Samsung (Samsung.com, 2013)

2012

2011

Revenue

187,754,283

154,048,895

Cost of Sale

118,244,730

104,700,887

Gross profit

69,509,553

49,348,008

Selling, general and administrative expenses

42,388,520

34,742,191

Profit for the year

22,262,426

12,845,713

Apple (Apple.com, 2013)

The amounts are in $ million terms.

2012

2011

Revenue

156,508

108,249

Cost of Sale

87,846

64,431

Gross profit

68,662

43,818

Selling, general and administrative expenses

10,040

7,599

Profit for the year

41,733

25,922

Changes from One Year to Another

Samsung

The revenues for Samsung increased from year 2011 to 2012. This shows that the sale of Samsung's products had increased from the previous year. In percentage terms, the revenue ...