Accounting for iPhone at Apple Inc. 1. What is subscription accounting?
Subscription accounting is a method in which to recognize the revenue and cost of goods sold are evenly divided over a specific period of time. The revenue is deferred into unearned revenue which would be considered as a liability account. This method also deals with the timing of a sale, in which the sale during the middle of the month will still be recognized in the full month. In this case, Apple uses a straight-line basis of 24 months, which is the estimated phone contract period. Apple will collect the cash from the date of the sale, but will be in a deferred account. The portions of the revenue will be recognized evenly throughout the 24 month period. Since the iPhone sends upgrades of the software, this method allows those costs to be estimated throughout the time period. Therefore this method can be considered less bias for the company. 2. Why did Jobs want to provide non-GAAP accounting data?
Jobs wanted to provide non-GAAP accounting data because he believed it would “eliminate the impact of subscription accounting.” He boasted that the non-GAAP sales of 2008’s fourth quarter was $4.6 billion, totaling 39% of total revenue. Also, the research showed that investors preferred the non-GAAP data because it was easier to understand Apple’s earning and was easier to compare their data to other competitors. Overall, the non-GAAP data seem to better reflect Apple’s business, and better predicted future performance, which is another reason why Jobs began to add the non-GAAP supplements in their financial results. 3. Under the new ASC 606, how should Apple recognize the revenue of iPhone sales?
ASC 606 reflects on the new rules and guideline of recognizing revenue which will be effective by 2017. This new update includes a more in-depth guideline on specific topics, especially when