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Accounting for the Iphone at Apple Inc.

In: Business and Management

Submitted By KennCollins08
Words 396
Pages 2
Kenneth Collins
Prof. Richard
Accounting 495
10/17/14

Accounting for the iPhone at Apple Inc.

In 2008 Apple decided to include non-GAAP measures of earnings along with its earnings under GAAP. The results had shown that there was a 48% increase difference between the two methods. Revenues and income under non-GAAP recording are exponentially larger which seems like the obvious choice in recording revenues. However, because Apple must recognize revenues under GAAP they are required to use the “subscription method of accounting.” Under GAAP Apple is required to record under software revenue recognition. This requires that Apple have to recognize revenues and product costs on a straight line basis for the life of its service coverage periods. Revenue has to be deferred and recognized over time. The impact of this on the income statements is that reported revenues would only account for a small portion of actual sales of the product. This could make it seem as if the company isn’t as profitable as it actually is. Non-GAAP recognition on the other hand could show how much a company is actually making in a particular period. This makes it easier for a company to show its potential for future performance. Apple decided to provide its non-GAAP financial statements to show revenues without the subscription accounting method. The non-GAAP method showed revenues of $11.7 billion compared to $7.9 billion under the GAAP method. The non-GAAP method would make companies look more profitable on their financial statements be boosting the revenues that would be recognized. GAAP was set in place for a reason, and one of the reasons is to provide fairness of financial reporting to all stake holders which includes consumers and shareholders. Despite the non-GAAP recording method being much more appealing in terms of recognizing revenues; this method tends to benefit...

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