Income Statement - Case Study Example

Revenue recognition is a significant issue because it is among the principles outlined under the GAAP that are to be followed when recording financial statements. In the field of accounting, the preparation of financial statements is guided by a number of principles. One of the main principles of accounting is the Generally Accepted Accounting Principles (GAAP). GAAP outlines a series of principles including the principle of revenue recognition. It outlines that entities should record and recognize revenue when a product has been delivered or there is the completion of a service.

This includes the entity not having any regard to the timing of cash flow from the operations of the organization. For instance, if a business makes an order of one hundred compact discs from their supplier during the month of January, receives them in February and make payments in March. The wholesaler should record revenue in the month of February when he made the delivery rather than in January when a business deal was established or in March when payment for delivery was received (Porter and Norton, 2009).

The matching principle requires that business entities match their expenses with related revenues during the same financial period. The principle is majorly applicable in the determination of income for a specific time period. This is because the measurement of income involves the matching of revenues earned and the expenses incurred in the process of earning revenues (Norton, Diamond and Pagach, 2006). The first step in recording income for a business involves the determination of revenue which is later on followed by the deduction of the expenses incurred in earning that revenue figure.

This eventually results in the determination of the net income figure. The idea behind the concept of the matching principle is that there is a cause and effect relationship between revenues and expenses. For instance, sales are as a result of the cost of goods sold expense and sales commissions. Part II Apple Inc is a US based company that specializes in the design and marketing of consumer electronics, software and personal computers. The company is one of the best performing companies in the global business market.

Philips on the other hand is a Dutch company that specializes in the manufacturing of electronics. The company has emerged to be one of the strongest electronic brands in the global market. I have two financial periods for the companies including 2010 and 2009. The financial statements for Apple Inc and Philips are located under the following links: Apple Inc. http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?symbol=AAPL http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?lstStatement=Balance&stmtView=Qtr&symbol=US%3aAAPL http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?lstStatement=CashFlow&stmtView=Ann&symbol=US%3aAAPL Philips http://www.philips.com/shared/assets/Downloadablefile/Investor/Annual_Report_Full_English_2009.

pdf http://www.philips.com/shared/assets/Investor_relations/pdf/Annual_Report_English_2010.pdf Apple Inc and Philips follow the Generally Accepted Accounting Principles convention (GAAP) under their respective countries. Apple Inc prepares its financial statements on a basis that is consistent with the US GAAP whereas Philips prepares its fina