Revenue recognition fun at Doodle Inc
They're popping out everywhere I go these days. This no doubt has something to do with the fact that the instructors at the SOA
told us to make sure we know EIC-141
, which would've been good to know for last week's practice exam.
Of course, just because revenue recognition affects all companies that aren't, you know, dead.
So it doesn't hurt my study plans to note that Google just announced that they're diversifying their revenue streams
by introducing yet another service
: Google Checkout.
Coming hot on the heels of another superfluous announcement, new features
on Google Video - superfluous since I spotted the features a few days before the announcement came out - it's been accompanied by predictable criticisms, and interesting points, such as the argument that the government
may need to introduce its own version of electronic currency - so organizations like Google can't censor who is able to do online commerce.
Another interesting thing is that Citibank credit card holders can get a free $5
by registering on the site. Unfortunatley the TOS
indicates this offer is only valid for Americans. The free money page alludes to this by leaving the "Country" address field fixed at "United States."
As interesting as that all is, though, I don't really care about it.
In my mind, I'm just thinking - "if some question writer turned this into a case, what kind of issue would they likely turn this into, and what would the correct accounting treatment be?"
The most likely scenario is that you're presented with the case of a fictional company called "Doodle Inc" which brokers sales online, and books 100% of the sales price in their revenue, instead of the hypothetical 2% commission they're charging.
That's the easiest concept to tackle, of course - it gets more complicated if you add in the concept of returns.
If a customer returns the product, does Doodle have to refund its commission? That'll, of course, depend on their contract. If they agreed to do so in their contract, then they can't recognize revenue from brokering the sale until the return period is over.
On the other hand, if their contract clear states that they have no obligation to handle the cash from transfers, this wouldn't be an issue. But that wouldn't be a smart assumption to make, since it's logical to assume they need to be able to let money flow "both ways".
In fact, would they perhaps earn an extra windfall by charging an additional commission on refunds? Now that's really
unlikely since their business partners would no doubt be pretty upset by such a policy. But in the unlikely event that this was disclosed as an actual contract term, that'd be another interesting item to record revenue on. Interesting, since it's money made from a nuisance transaction, but not terribly interesting as the accounting treatment would be pretty mind-numbingly straightforward.
The case of Doodle's revenues, is of course, just one possible scenario. though.
We've been amply warned to expect something we've never seen before. So it's time to focus on reviewing whatever hard topics still feel like mysteries, and keep going at a reasonable pace until the big day - E-Day is Tuesday the 4th of July, 2006.