Staff Accounting Bulletin 101's Effect on Major Retailers

In: Business and Management

Submitted By dbierman13
Words 1377
Pages 6
Staff Accounting Bulletin No. 101 (SAB 101), “Revenue Recognition in Financial Statements” summarizes the staff’s beliefs regarding the application of generally accepted accounting principles (GAAP) to revenue recognition in the financial statements (Securities and Exchange, 1999). Specifically AIA 2-3 relates SAB 101 to Wal-Mart stores and its recognition of revenues due to layaway contracts. Before the issuance of SAB 101, Wal-Mart was recording the revenue from layaway contracts and membership fees at the point of sale and time of receipt, respectively. SAB 101 caused retailers such as Wal-Mart to adhere more closely to basic accounting principles while recording layaway transactions and the collection of membership fees, resulting in increased comparability amongst competitors.

Revenue Recognition Principle
The revenue recognition principle states that revenue recognition occurs when it is both realizable and earned. Satisfaction of these requirements can take place during production, at the end of production, at the point of sale, or upon the receipt of cash. Revenue can be recognized during production for certain long-term construction contracts because a percentage of the revenue has been earned based on the percentage of completion of the project. Recognition can happen at the end of production but before the sale when the products are salable at readily determinable market prices. In the agriculture and mining industry where a quoted price is available at the end of production, end of production recognition is common. Recording revenue at the point of sale is the standard for most retail transactions where the duties of the retailer and the consumer are performed immediately. Sometimes a company must wait to record the revenue until the receipt of cash. The main reason for a company…...

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