University:
Massachusetts Institute of Technology
Course:
15.501 | Introduction To Financial And Managerial Accounting
Academic year:

2023
Views:

110

Pages:

4
Author:

Kane Quinn

Revenue Recognition - Announcements - Intel Cash Collections - Circuit City Reverse Engineering: How Much Cash Did Intel Collect From Customers In 2002? Reverse Engineering process: Identify Relevant Balance Sheet Accounts: A/R, Allowance for Doubtful Accounts, Deferred Income Identify the activities that affect these accounts: • Recognizing sales revenue as A/R • Recognizing bad debt expense • Writing off uncollectible accounts • Invoicing products that affect the Deferred Income Liability Obtain amounts from the Financial Statements, notes, other • i.e., Intel’s Bad Debt Expense ($10M) and Write-offs ($21) are disclosed in its 10-K report filed with the SEC, but not in the annual report. Set up BSE template and “plug” the remaining numbers Determining Intel’s Cash Collections Cash +AR -ADA Begin Balance 2,675 68 Sales Revenue 26,764 Bad Debt Expense -21 Change in Def Inc End Balance =Def Inc 26,764 -10 -21 115 -58 26,902 115 -58 -26,902 2,631 +RE 418 10 WriteOffs Cash Collected +OA 57 475 Summary Points - Criteria for recognizing revenue • Collectibility: Match expected bad debts to the period in which the sales occur - Distinguish between Bad Debt Expense and Write-Offs Methods for estimating Bad Debts / Uncollectible Accounts • Right of Return: match expected returns to the sales period, or more conservatively, defer revenue recognition until return protection / price protection ends. Reverse Engineering: infer the activities that underlie a firm’s reported financial results