Essay about Generally Accepted Accounting Principles and Revenue Recognition

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Revenue Recognition:
Case Study on
Caltron Computers, Inc.
Julie Mong
April 17 , 2010

1. In general, evaluate Caltron's revenue recognition policy and the quality of Caltron's earnings. Caltron Computers, Inc., a computer hardware company, is publicly held with market capitalization amounting to over $450 million. Carlton’s system designs enable their mini-computer systems to measure up to the power of mainframes with small cost outlays. The accounting practices at Carlton normally permit revenue recognition after the shipment of the computer systems. Peale, Gower and Quill, Carlton’s auditors, are worried about the accounting practices regarding revenue recognition of certain transactions during the …show more content…
Issued in 2009, the FASB's ASC (Accounting Standards Codification) comprises only general guidance on assessing alleged bill-and-hold agreements in Concepts Statement 5 and AICPA SOP (Statement of Position) 97-2. Additionally, SEC has averred that US GAAP do not permit public companies to complete bill-and-hold contracts without the buyers having convincing business purposes for asking for postponements in shipment of goods (Clark & Ryerson, 2010). In the case of the bill-and-hold arrangement with Alation Electronics, there is no fixed delivery schedule. Also there appears to be a complete lack of compelling business purpose to request for postponement of the shipment of goods until the first quarter of 20X2, particularly in terms of the lack of clarity regarding the consignee details of the shipment. In view of the same, it is recommended that the revenue of $250,000 should not be recognized. Under the terms of the third transaction viz. the bill-and-hold arrangement with BTO Computer Leasing, there is no fixed delivery schedule even for the single user that has been identified. Indeed, the other 4

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qualities of accounting information, and briefly describe? Relevance Relevance in accounting information is necessary for predictive and feedback value. Timeliness Timeliness is a quality subset of relevance. If you do not present accounting information in a timely manner, its usefulness to investors and managers is diminished or completely eliminated. Reliability If accounting information is not reliable, it cannot be used to make quality business decisions. Consistency In order for accounting information…

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