TOURO UNIVERSITY INTERNATIONAL
JOSE L CRESPO
BUS 599 SLP 1
Simulation strategies assist in making management decisions since it’s measurable and can be evaluated by carrying out production, pricing and marketing strategies. As an example in making decisions concerning the five products, simulation strategies can be implemented based on revenue accumulation and profit margins. The simulation strategy will mainly concentrate on revenue recognition which refers to an accounting principle that involves cash basis accounting and accrual basis accounting. Cash basis involves recognizing revenues when cash is received while accrual basis accounting recording revenues when cash is realized or earned.
Revenue recognition involves several criteria’s, the most notable ones include:
Ø Evidence on the existing arrangement
Ø After delivery or rendering of services
Ø If the selling price is fixed and can not be determined
Ø A reasonably assured collect ability
Different revenue recognition methods assist in the management in ensuring smooth earnings and besides increase in investors trust. The methods also assist implementation of the matching concept, this is where by revenues are compared with the expenses. In addition, the revenue recognition methods are essential in easier maintenance of the financial statements. A good example is the profit analysis of the five products.
Importance of revenue recognation as a simulation method
Therefore, use of different revenue recognition can easily be used indifferent kinds transactions. These include inventory recognition at the date of sale, service performance revenue, use of company’s asset and revenue from asset from rather than inventory. Revenue recognized is mainly recorded in the income statement. Income statement represents a period of time, it’s therefore used by managers and investors to show if the company made profits or losses in that specific period. For the income statement to be said to be of high quality only reliably measurable items showed be reported, use of multiple accounting methods (FIFO, LIFO), and also avoid too estimation or creative accounting.
1. Ulrich, Dave (1996). Human Resource Champions. The next agenda for adding value and
delivering results . Boston, Mass.: Harvard Business School Press. ISB
2. Weygandt, J. J., Kieso, D. E., & Kell, W. G. (1996). Accounting Principles
(4th ed.). New York, Chichester, Brisbane, Toronto, Singapore: John Wiley & Sons, Inc. p. 801-802.
3. Bodie, Zane; Alex Kane and Alan J. Marcus (2004). Essentials of Investments, 5th ed. McGraw-Hill Irwin, 459.
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