Accounting Policies are the specific policies and procedures used by a company to prepare its financial statements. These include any methods, measurement systems and procedures for presenting disclosures. Accounting policies differ from accounting principles in that the principles are the rules and the policies are a company’s way of adhering to the rules. Revenue Recognition:
Revenue recognition determines the accounting period, in which revenues and expenses are recognized. General Mills recognize sales revenue when the shipment is accepted by their customer. Sales include shipping and handling charges billed to the customer. We generally do not allow a right of return. However, on a limited case-by case basis with prior approval, General Mills may allow customers to return product. Receivables from customers generally do not bear interest. Terms and collection patterns vary around the world and by channel. Cash and Cash Equivalents:
Cash and equivalents are cash or cash equivalents that a company possesses at any given time. Examples of cash equivalents are: money market accounts, treasury bills, and short term government bonds. Cash and cash equivalents are a business’ most liquid assets. Cash on hand results from a positive cash flow statement. General Mills consider all investments purchased with an original maturity of three months or less to be cash equivalents. Merchandise Inventories
Merchandise inventory is the value of the products that a retailing or wholesaling company intends to resell for a profit. All inventories in the United States other than grain are valued at the lower of cost, using the last-in, first-out (LIFO) method, or market. Grain inventories and all related cash contracts and derivatives are valued at market with all net changes in value recorded in earnings currently. Inventories outside of the United States are valued at the lower of cost, using the first-in, first-out (FIFO) method, or market. Shipping costs associated with the distribution of finished product to our customers are recorded as cost of sales, and are recognized when the related finished product is shipped to and accepted by the customer. Property and Equity
The Term Paper on Revenue-Recognition Problems in the Communications Equipment Industry
1) In late 2000, Lucent announced that revenues would be adjusted downwards by $679m as a result of revenue recognition problems. Yet the firm’s market capitalization plummeted by $24.7bn. Why do you think the market reacted so negatively to Lucent’s announcements of the problems? The large drop in market capitalization is probably due to several factors. Historically, Lucent had successfully met ...
Property and equity is a company asset that is vital to business operations but cannot be easily liquidated. Land is recorded at historical cost. Buildings and equipment, including capitalized interest and internal engineering costs, are recorded at cost and depreciated over estimated useful lives, primarily using the straight-line method. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows from the operation and disposition of the asset group are less than the carrying amount of the asset group.
