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Procter & Gamble Financial Statement Analysis
Most people think of financial statements as a tool only used by accountants and financial experts, but over the years they have grown to become a powerful tool in analyzing the financial health of organizations for anyone who is interested. According to Ruhl & Smith (2013), the motivation behind the joint FASB/IASB conceptual framework was to make accounting information useful and the two most important components of usefulness are faithful representation and relevance (p. 11). Below the 2013 Procter & Gamble Annual Report will be used to analyze the financial statements to determine P&G’s revenue recognition policy and the impact of trade promotions on their financial statements; to determine some specific examples of where they have chosen to use historical cost versus fair value; to determine their accounting policy as it pertains to advertising, and finally to conclude whether P&G’s accounting principles are consistent with those of the previous years’ statements.
Revenue Recognition Policy According to P&G’s notes to consolidated financial statements sales are recognized when revenue is realized and earned, their policy is to recognize revenue when the customer has received title to the product along with the risk of loss, this can happen either on the date of the shipment or the date the customer receives the product, additionally a reduction to sales is recorded in the same period as the revenue is recognized to allow for payment discounts and product returns (CSU-Global, 2016). P&G’s revenue recognition policy is in line with the approved revenue recognition rules issued by the Securities and Exchange Commission (SEC) in 1999 which says that companies should not recognize revenue until it is realized and delivery has occurred or services rendered (Phillips & Luehlfing 2001).

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