Revenue Recognition

In: Business and Management

Submitted By beckl1kd
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The purpose of this memorandum is to inform you whether the $3 million in sales are related to the three customers can be recorded in this year’s revenue or not. Deciding if the sales can be recorded in this year’s revenue is a big deal for the company, Medical Devices Inc., because it determines if the company reaches the budgeted sales or not.

Medical Devices Inc. is a company that trades securities on the American Stock Exchange to various businesses and people. As the year-end is approaching, the management team realizes they need to increase their sales by $3 million by the end of December. The CEO of the business calls three customers and increases each businesses order by $1 million. Medical Devices Inc. needs the customers to sign and return a sales agreement in order to complete the transaction, but only one of the three customers do so by the end of December.

According to the FASB Codification section 605- Revenue Recognition, a sale is not recognized until it is recognized. Another way of saying that is that the sale is not recognized until the paper work is received and the company is able to properly file all the paper.

In conclusion, it can be seen that Medical Devices Inc. did not meet their budgeted sales. This is because two out of the three customers’ sales agreements were not received until after the end of December, which causes the sale not to count for that period. In order to meet the budgeted sales for the new year, I feel like the company needs to push more customers to purchase securities earlier in the year, which allows the sale agreements to reach Medical Devices Inc. in the same year as they were…...

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