Ch.4 Blog - RIM Records Lower Revenues Than In Previous Years.

http://ctv2.theglobeandmail.com/servlet/story/RTGAM.20090211.wrim0211/business/Business/businessBN/ctv-business

Summary

Chapter 4 focuses very strongly on revenue recognition. It stresses how important it is to not only know how much money is flowing into a business, but when to record that amount of money on the financial statements. The financial statements are the lifeblood of any organization and need to be kept accurate. Financial statements would be out of balance and accounts would be out of whack if it weren’t for revenue recognition. Just think of it this way, if you make money on the stock market, you would have to take into account the money that you had originally invested. The only money you have made is on top of your original investment. The expenses that helped create the revenue must be accounted for.

Connections

This story connects to Chapter 4 in that it is mainly about revenue. Research In Motion, the makers of the popular BlackBerry seem to have been losing money on the stock market recently. This may not have a major effect on internal employees of the company who are making millions of dollars, but it will have an effect on the external investors. The money that they have invested in the company is being lost, as the share prices will continue to drop for what seems to be until the end of this quarter. This may be easier to watch for executives, but for your typical investor, this will have a huge effect on the money coming into your business or household.

Reflections

What this chapter seems to stress is that there are many ways and many different times at which revenue can be recognized. While it may seem that poor sales are the sole cause of this performance, revenue recognition may have something to do with it. One possible answer is that a deal has been made with another company looking to buy phones, but the contracts haven’t been signed yet. Since the contracts haven’t been signed, the revenue can’t be recorded, which in turn means that it seems that money is being lost when it is indeed being made. This could be why the executives at RIM had such great confidence in a rebound next quarter. The dropping prices may also be caused by RIM not making as many BlackBerry’s as before, or RIM may not be collecting payments from a customer until a later date. All of these reasons may have something to do with the lower profits; however, we must remember not to jump to conclusions about the future. Revenue recognition can lead to confusion about a company because of the way that revenue is recorded at different times. Besides, RIM is a very successful company and I don’t see it going out of business any time soon.

C. Tut
FINAC12
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