Apple Inc. has led the market for so-called smart phones with its iPhone, while competitors...
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Apple Inc. has led the market for so-called smart phones with its iPhone, while competitors crowd the market daily with products such as the Galaxy from Samsung, Nexus, co-developed by Google and LG Electronics, and Motorola's Droid. Manufacturers that sell these products are producing both hardware and software for their customers, not only selling the phone but also providing services to make the phone as functional as possible. Historically, the companies would record the revenue from the sale over the assumed life of the product, typically two years. Recently, however, the FASB approved changes that allow these companies to record more of the revenue in earlier periods of the phone's use. How do companies recognize revenue, and how are the financial statements affected? What might motivate management to recognize revenue early, and how might a company's stock price react to such behavior?
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