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Accounting project - Essay Example

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The sold goods are held in third party warehouses until a later date when they will be delivered to the customers. Based on sunbeams case the high earnings…
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Download file to see previous pages The strategy shifted sales from the future periods to the current quarter. In addition, the approach assumed a gross profit on the future sales, which resulted in the inflation of the earnings in 1997. Therefore based on the company-adopted strategy, Dunlap accelerated the company’s revenues by 18 percent. The management had adopted this plan to improve the stock prices, which would have resulted from good earnings reports presented by the company (Sondhi, & Taub, 2008). The increase in stock prices would assist in the acquisition of debt financing for the merging process.
The bill and hold strategy adopted by the company provided incentives to the customers to make purchases whose delivery and billing was to happen in the future. The customers were not expected to pay for the goods until when the goods were delivered. Actual payments of the current period sales occurred in the preceding quarters. Therefore, the sales were recorded in the books of accounts as accounts receivables resulting in the increase of the accounts receivables expected by the company. The company avoided a significant shortfall in revenues, therefore, the continued using the bill and hold strategy in the preceding quarters. In this case income was not recognised at the point of sale rather it was recognised immediately the customer accepted the bill and hold conditions.
Revenue may be earned during a period, but it is usually recognised at a point to fulfil the revenue recognition criteria, which is satisfied at the point of product delivery. Based on this revenue is recorded when there is certainty of the cash being received. Based on sunbeam’s case record of 1998 quarter first revenues were recorded in 1997 due to the fraudulent bill and hold strategy that they had adopted (Sondhi, & Taub, 2008). The sales revenue acquired in the first quarter of 1998 was used to offset futures that the company had borrowed to satisfy the bill and hold ...Download file to see next pagesRead More
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