IndexAbstractIntroductionInternational Financial and Reporting StandardAuthoritiesThe conceptual frameworkThe financial statementChapter summaryIFRS 15 – Revenue from contracts with customersThe objective of IFRS 15Five steps to recognize revenueIdentify the contract with the customerIdentifying performance obligations in the contractDetermining the transaction priceAssigning the transaction price to the performance obligationRecognizing revenue when (or as) a performance obligation is satisfiedChapter SummaryNokia CorporationHistoryThe fall of NokiaNOKIA since 2018Financial performance in 2019Gross marginCost savings programRecognition of RevenueSale of ProductsSale of ServicesSell of Intellectual Property LicensesChapter SummaryU.S. Accepted General Accounting PrinciplesAuthoritiesPrinciplesFinancial ReportingChapter SummaryASC 606 – Revenue from Contracts with CustomersObjectiveFive StepsIdentifying the ContractIdentifying Performance ObligationsDetermining the Transaction PriceAssigning the Transaction PriceRevenue RecognitionChapter SummaryApple Inc.HistoryThe success of APPLEFinancial Majors in 2019Net SalesChapter SummaryConclusionAbstractThis literature review examines the International Financial Reporting Standard and the United States General Accepted Accounting Principles. The document highlights the revenue recognition standards, IFRS 15 and ASC 606 of both accounting standards, and provides examples of two companies, Nokia Corporation and Apple Inc., that use the standards. Therefore, the paper aims to answer the research question what are the differences in revenue recognition in the technology sector. Since the graduate article is a literature review, mainly preview scientific articles were used. Additionally, books on US-GAAP and IFRS are paraphrased in this document. Furthermore, the economist's articles helped demonstrate the current situation of the two companies. The literature review concludes that there are only small differences between recognition standards. The IASB and FASB jointly designed revenue recognition standards to eliminate differences and increase the comparability of accounting standards within industries. However, the most important difference between the two revenue recognition standards is the definition of probable. The paper also notes that Nokia Corporation and Apple Inc. use various methods to investigate standalone selling price and have chosen similar performance obligations. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essayKeywords: revenue recognition; IFRS vs. US-GAAP; IFRS 15 and ASC 606; Nokia Corporation; Apple Inc.IntroductionGlobalization and governments eliminate borders and borders around the world to increase international business. This leads to the result that the different accounting standards must be comparable with each other and understandable worldwide. Therefore, this document aims to analyze the International Financial and Reporting Standards and the General Accepted Accounting Principles of the United States. These standards were chosen because most global capital markets require IFRS, except the United States, which requires US-GAAP. (PwC 2014, 1-6) Furthermore, this essay will highlight the differences between the two standards and focus in detail on the related revenue recognition standards. Revenue is the headline of the income statement and the ultimate measure of business success. (Prather-Kinsey, Boyar, and Hood 2018, 1) Therefore, it isIt is important to understand how IFRS 15, Revenue from Contracts with Customers in IFRS, and ASC 606, Revenue from Contracts in US-GAAP, differ from each other. Additionally, this graduate article provides two examples of companies using the standards. Nokia Corporation (hereinafter referred to as "NOKIA") is an example of a company that uses IFRS and revenue recognition standards. NOKIA is one of the world's leading suppliers of technology devices. However, the company has struggled to stay in the mobile business. (Doz 2017) Apple Inc. (hereinafter “APPLE”) exemplifies the US-GAAP principle and the ASC 606 standard. APPLE is a direct competitor of NOKIA and one of the reasons why Nokia Corporation was forced to abandon the industry in the early 2000s. (Doz 2017) Therefore, this paper will answer the research question what are the differences in revenue recognition in the technology industry. Additionally, this document will answer questions about what the most significant differences are between the concepts of IFRS and US-GAAP. This graduate article first explains IFRS and the related revenue recognition standard IFRS 15. To directly provide a practical example, it describes the company NOKIA, as well as its history, its financial performance and its revenue recognition principle. Second, the document highlights US-GAAP and its standard revenue from contracts with customers, ASC 606. Next, the APPLE company, its history and its revenue recognition policies are analyzed. Finally, this essay investigates the differences between IFRS and US-GAAP and the related revenue recognition policy. To answer the research question, the paper focuses on the differences between the revenue recognition standard of NOKIA and APPLE. This paper is a systematic literature review based on Briner and Denyer (2012) (Briner and Denyer 2012). Therefore, scientific articles, mostly peer-reviewed, were taken into consideration. Useful articles were found in the following databases: Science Direct, Springer Jisc Collections, and SpringerLink. To find relevant literature for the literature review, a collection of different keywords and numerous combinations were used in the search process. Examples of such keywords are "IFRS", "Revenue recognition" and "Differences in revenue recognition". Additionally, the fiscal year annual financial statements of NOKIA and APPLE were used as a bibliographic source. Furthermore, this article paraphrases scientific books on IFRS and US-GAAP. Some articles from online platforms such as The Economist were used to ensure up-to-date information on the two companies. WorldCat-Discovery, the online literature search system provided by the University of Applied Sciences Wiener Neustadt, found 510 articles based on the keywords described above. After ensuring that only peer-reviewed articles were shown, the list was reduced to 183. Furthermore, academic articles from low-ranking journals were eliminated, leading to the result that only journals rated 4 or 4*, according to "Academic Journal Guide 2018”, provided the basis for this essay.International Financial and Reporting StandardThe International Financial and Reporting Standard, IFRS for short, is required on the most significant capital markets worldwide since it is not specific by country (PwC 2014, 1) The following chapter provides the principles of IFRS Authority The IFRS was established in 2001 by the International Accounting Standards Boards (IASB), which has managed IFRS and has the ultimate authority. level on IFRS. The Council is overseen by the International Accounting Committee, made up of a group of trusteescalled the International Financial Reporting Interpretations Committee (IFRIC). Furthermore, the Monitoring Board, a group of capital market authorities, aims to protect IFRS from political influence as the standard is not based on a specific country. (Hays 2015, 1) The conceptual framework The conceptual framework presents the nature, function and boundaries of financial accounting. The framework highlights the overall objectives of the budget. It was published by the IASB. The primary objective of financial reporting is to provide financial information, about a reporting entity, that is useful to existing and potential investors, lenders and other creditors. This information includes data about the entity's economic resources, receivables, and changes in those resources and receivables. In general, financial information about a reporting entity helps users make investment decisions. Furthermore, they show a company's strengths and weaknesses. (Harrison Jr. et. al. 2014, 8-9) The conceptual framework explains that qualitative characteristics will make financial information useful to its users. Financial information is usable when it is relevant and faithfully represented. These are called key quality characteristics. It should be noted that the degree of relevance is influenced by the materiality of the information. Materiality means that the information provided must be sufficiently important, so if it is left out it changes the user's decision. Key quality characteristics can be strengthened by improving quality characteristics. The qualitative characteristics that improve are comparability, verifiability, timeliness and understandability. (Harrison Jr. et. al. 2014, 8-11) Financial Statements Annual reports are the primary source for shareholders, financiers, and other stakeholders to obtain information about a company. Annual reports usually include the company's objectives, its vision and its financial statement. (Harrison Jr. et. al. 2014, 220) A company, operating under IFRS, is required to present its operating results and financial position according to a set of rules. A company needs five balance sheets. The first statement is the financial position that includes the assets, liabilities and net worth of a company at a particular time. The second statement is the comprehensive income statement. This statement shows a company's revenue and expenses during a fiscal year. The third statement is called the statement of changes in equity. Reflects changes in net worth for the year presented. The fourth statement is the cash flow statement, which represents all cash inflows and outflows from operating, financing, and investing activities during a fiscal year. The last statement consists of the additional notes, which summarize the accounting principles and additional information. The revenue recognition standard used by a company is explained in detail in the notes. (Murphy 2020, 153-154)Chapter SummaryThe International Financial and Reporting Standard is administered and supervised by the IASB. (Hays 2015, 1) The conceptual framework summarizes the most important rules on how to use IFRS. The framework highlights in particular that information must be relevant and faithfully represented in order for it to be used for financial reporting. (Harrison Jr. et. al. 2014, 8-11) The five financial statements are the statement of financial position, the statement of comprehensive income, the statement of cash flows, the statement of changes in equity, and the notes. The main objective of this statement is to provide readers with information on the current position ofa company. Therefore, the financial statement can be described as a source of information. (Murphy 2020, 153-154)IFRS 15 – Revenue from contracts with customersRevenue is the headline of the income statement and the ultimate measure of a company's success. (Prather-Kinsey, Boyar, and Hood 2018, 1) This section provides an overview of how IFRS describes revenue and what steps must be followed to recognize revenue. The scope of IFRS 15IFRS 15 is effective from 1 January 2018. It replaced all existing revenue recognition standards from IFRS. Compared to the old revenue recognition standard, IFRS 15 requires significantly more qualitative and quantitative information. The primary objective of IFRS 15, Revenue from Contracts with Customers, is for an enterprise to report useful information about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer on the balance sheet. To achieve this objective, an entity must recognize revenue when control of the product or service is transferred to the customer. (IFRS Foundation 2019, 5)It is important to note that this standard is specified for a single contract with a customer. However, entities are permitted to use this principle for a portfolio of contracts with similar characteristics. If a company decides to use this standard for a portfolio, it must estimate and assume the size and composition of the portfolio. Furthermore, IFRS 15 distinguishes between performance obligations satisfied over time and performance obligations at a specific point in time. (IFRS Foundation 2019, 5)Five steps to recognize revenue The IASB has designed five steps that must be followed to correctly recognize revenue. These steps are as follows, provided by the IFRS Foundation 2019: Identify the contract with the customer Identify the performance obligations in the contract Determine the transaction price Assign the transaction price Recognize revenue when (or as) a performance obligation is satisfied (IFRS Foundation 2019) The objective of the Five-Step Model is to ensure a comprehensive revenue recognition model to improve comparability between and within sectors and across capital markets. This aims to increase competition between various markets and reduce barriers between accounting standards. (PWC 2017, 13)Identify the contract with the customerAccording to IFRS 15 contracts can be entered into in writing, orally or in accordance with commercial practice. Furthermore, the principle explains that a contract is an agreement between parties that involves obligations and rights. Furthermore, a contract must meet the following principles to be identified: The parties have agreed to the contract and are legally responsible to fulfill their obligations The company can analyze the rights of each party The company can evaluate payment The contract has commercial substance It is probable that the contract will be fulfilled (IFRS Foundation 2019, 6-7) A company can take over the contract if it is probable that it will be fulfilled. To find out the probability, a company can analyze the customer's ability to pay the promised amount. Therefore, a company must investigate past transactions with the customer and the customer's account balances. In IFRS probable is defined as “more likely than not”, which is known to be greater than 50%. In other words, if the probability that a customer will fulfill his performance obligation is greater than 50%, the company recognizes the contract. (IFRS Foundation 2019, 6-7) Identify performance obligations in the contract The standard defines two types of performance A distinct good or service A series of distinct goods or services, which are generally the same and have the same conveyance to the customer (IFRS Foundation 2019, 6 -7) 2019, 10-12) Generallyonly the goods or services agreed in the contract will be delivered to the customer. However, in some cases, performance obligations are not limited to those stipulated in the contract and arise from the company's business practice. However, this can occur in B2B and B2C markets. (IFRS Foundation, 10-12) Determining the transaction price After performance obligations have been satisfied, an entity shall recognize revenue in the amount of the transaction price, which is in accordance with the performance obligation. When an entity determines the transaction price, it must examine the terms of the contract and its business practice. Transaction price consideration should include fixed costs or variable costs or both. If the consideration includes a variable amount, the company must estimate the consideration, as it can vary due to discounts, refunds, etc. Additionally, companies are not required to disclose their pricing method. Typically, the nature, timing and amount of the consideration affects the price of the transaction. IFRS 15 states that an entity should not take into account whether a contract will be renewed or cancelled. (IFRS Foundation 2019, 17)Allocation of transaction price to performance obligationA company must allocate a transaction price to each performance obligation equal to an amount it expects to receive for the goods or services promised to the customer. To achieve this, a company should identify each bond based on its stand-alone selling price. Standalone selling price is the amount of a good or service for which a company would sell it separately to a customer. Sometimes a list price or contractually established price may be the stand-alone selling price of a good or service. If the stand-alone price is not directly recognizable, the company should estimate the stand-alone price. Hereby, the company must consider all available information, including market position, economic factors, internal factors and customer information. Additionally, the entity must use estimation methods to obtain a stand-alone price. An example of such methods is the adjusted market valuation approach or the residual approach. (IFRS Foundation 2019, 22-26) Additionally, a customer may receive a discount if the sum of the individual prices in the contract exceeds the consideration promised in a contract. However, if a company has evidence that the discount applies to only one or more but not all performance obligations, it can assign the discount to the proportional performance obligations. (IFRS Foundation 2019, 22-26) The price indicated in the contract may change for various reasons. Therefore, only amounts that satisfy performance obligations should be recognized as revenue or as a reduction in revenue in the period in which the transaction price changes. It is permitted to declare only entire changes to one or more obligations, but not to all. Furthermore, changes in the price of a transaction, which occur as a result of a modification of the contract, must be explained in the financial statements. (IFRS Foundation 2019, 22-26) Recognize revenue when (or as) a performance obligation is satisfied After a party has fulfilled its contractual obligations, the company must show the contract on the balance sheet. The contract is shown on the statement as a contract asset or contract liability, depending on the relationship between the company's performance and the payment to the customer. To disclose revenue, a company must ensure that users of financial statements find information about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, a company must disclose the following: Opening and closing balances of receivables,contractual assets and contractual liabilities from contracts with customers Revenue recognized in the reporting period Revenue recognized in the reporting period from performance obligations satisfied in previous periods (IFRS Foundation 2019, 29-31) Furthermore, an entity must describe in the notes when the performance obligations are normally fulfilled, the company's payment terms, the nature of the goods or services and the company's obligations in the event of returns or refunds. (IFRS Foundation 2019, 29-31) Chapter Summary IFRS 15 has been in practice since 1 January 2018. It has been implemented to provide guidance on how to recognize revenue in various sectors. This aims to improve comparability between various markets. To correctly recognize revenue you need to follow five steps. The first step is the identification of the contract, followed by the identification of the performance bonds. The price of the transaction must then be determined. The fourth step is to allocate the transaction price and finally recognize revenue. (PWC 2017, 1-13)Nokia CorporationTo provide a practical example of a company using IFRS, NOKIA was selected. NOKIA is made up of seven different technology business groups and operates in approximately 120 countries. HistoryNOKIA was founded in 1865 in Finland and started its telecommunications business in the 1990s. Due to their rapid success it became the best-selling mobile phone brand in 1998 and launched the first camera phone in 2003. However, strong competition from iOS and Android led NOKIA to enter into a strategic partnership with Microsoft. In 2014, Microsoft purchased NOKIA's mobile and device division. Between 2013 and 2015 the Finnish company shifted its focus to become a provider of networking hardware and software. Therefore, the company entered into a joint venture partnership with Siemens in 2013. In 2015 NOKIA purchased the French-American telecommunications equipment supplier Alcatel-Lucent, this improved NOKIA's portfolio and customer base. Furthermore, NOKIA has managed to position itself as a global technology leader in the communications industry. The company has acquired this position through acquisitions. In 2016 the company returned to the mobile phone market through a licensing agreement with HMD Global, a Finnish mobile phone manufacturer. Therefore, they were again able to offer phones under the Nokia brand. (Nokia 2020)Nokia's fallNOKIA represented 4% of Finland's GDP at its peak in the 1990s and early 2000s, when it was the world's leading mobile phone manufacturer. The entire Finnish society was self-confident in the company. Between 1996 and 2000 the company managed to increase its revenues by approximately 500%. However, the downside of this success is that NOKIA's development centers were under pressure and did not have the resources to predict that the company will soon transition to smartphones. Between 2001 and 2004, numerous strategic decisions were made to offset NOKIA's enormous success and reorganize the company. However, this resulted in the departure of important members of the leadership. Furthermore, the change in management struggled to adapt to the new economic environment, which APPLE pioneered. Therefore, the dysfunctional organizational structure, poor management decisions and lack of investment in the research department forced NOKIA to lose its position in the market. (Doz 2017)The chart below, taken from Yahoo!Finance, shows the massive increase in the company's shares between 1998 and 2000. The chart also indicates the loss of market position between 2000 and 2002.NOKIA since 2018The NOKIA's main goal was to improve its image andincrease its market position in the sectors in which it operates. The company benefited from its technology licensing business and solid cost reductions. Furthermore, NOKIA's stock price increased by 20% from 2017 to 2018, which indicates that the company is on its way to becoming a leading mobile provider again. As of 2018, the company believes its primary growth comes from the adoption of 5G technology. Additionally, the company has successfully expanded its licensing operations into new markets and believes this sector has 10% compound annual growth. It is important to mention that NOKIA has been working on a cost-cutting initiative, which plans to cut costs at an annual rate of 700 million euros by 2020. (Forbes 2018) Financial performance in 2019 NOKIA operates in approximately 120 countries and had an average number of employees of 98,000 in 2019. The company has seven business groups. These groups are: Mobile Networks, Global Services, Fixed Networks, IP/Optical Networks, Nokia Software, Nokia Enterprise and Nokia Technologies. Nokia Corporation reported net sales in 2019 of 23.315 billion euros. Their highest growth area in 2019 was the Asia-Pacific region at 12%. The company managed to increase its net sales by 3.3%. Furthermore, Nokia managed to generate profits in 2019, thanks to the company's cost-cutting initiative. (Nokia 2019, 6)In 2019 NOKIA's highest sales by geographic region were North America with an increase of 6%. The second highest region was Europe. However, the company had to report a 15% drop in sales in the Greater China region. Interestingly, the company's largest business in terms of net sales is the network business. Mobile access is the strongest part of this business, and the IP routing part gained 15% in 2019. (Nokia 2019, 6) Gross Margin A company's gross margin is the profit from its sales net of costs, which are directly associated with sales. It measures how well a business generates profits. (Harrison Jr. et. al. 2014, 357) NOKIA's gross margin in 2019 was 35.7% compared to 37.4% in 2018. In 2017 the gross margin was 39.5%. According to the company's annual report, this loss comes from declining gross profit at Networks, Group Common and Other and Nokia Technologies. The losses were partially offset by lower product-related costs and increased gross profit at Nokia Software. (Nokia 2019, 49-51)Cost saving programIn 2016 the company started a cost saving program, the goal of which was to reduce costs by 1.2 million euros until 2018. The company was in able to complete this program and achieved his goal. In 2018 NOKIA started another cost reduction initiative, which plans to reduce costs by 300 million by 2020. (Nokia 2019, 52)Revenue recognitionAccording to NOKIA's 2019 annual report, the Group reports revenues in ​based on the geographic area of ​​revenues. Furthermore, it describes that the primary customer base is made up of companies that operate on a country-specific basis. In detail, NOKIA accounts for contracts with customers when both parties approve the contract in written form. This usually happens when both parties agree to their obligations and rights. These rights include payment terms, identification of the processing of goods and services, commercial substance and the consideration for which the existing NOKIA expects the contract to be probable. The indicators indicated apply to IFRS 15, step one according to the five-step model. (Nokia 2019, 129-130)NOKIA explains that it reports revenue from contracts with customers to show thetransformation of the good or service agreed to the customer. The company includes variable considerations, such as discounts or sales-based royalties, in the price only if it anticipates that it is highly likely that no revenue will occur. (Nokia 2019, 129-130) This information aims for the company to complete steps two and three of the IFRS 15 model. NOKIA's general payment terms are between 90 and 180 days. Furthermore, the firm allocates the price of each performance obligation based on its stand-alone selling price. If a separate price cannot be observed, it is estimated. Furthermore, the Finnish company explains that a good or service must be distinct. NOKIA says it recognizes revenue when the company's performance obligation is fulfilled. This usually happens when the good or service is transferred to the customer and the customer gains control of the product. Therefore, NOKIA uses the interpretation of IFRS 15 when a performance obligation is fulfilled. Furthermore, the company establishes that a product is distinct and calculates the price of the product on its stand-alone selling price. (Nokia 2019, 129-130) This is NOKIA's approach to completing phases three and four of the five-phase model. A performance obligation can be satisfied over time or at a specific point in time. The company represents contracts with customers as a contractual asset or as a contractual liability, depending on the situation. A contractual asset means that a product has been transferred to the customer before the customer pays their obligation. On the other hand, a contractual liability represents that a customer has paid their obligation, but NOKIA has not yet transferred the product to the customer. NOKIA distinguishes three different types of sales. These three different types are as follows: Product Sale Service Sale Intellectual Property License Sale (Nokia 2019, 129-130) The company is implementing the five-step revenue recognition process by matching the steps to the operations of the 'agency. The company has implemented the phase approach as precisely as possible for its business, in order to be comparable to its direct competitors. Furthermore, the continuous use of the approach helps the company to investigate its progression over the years. Sale of products. Revenue for products is reported when control of the product is transferred. Such products are network equipment or network operations. Usually, control is transferred before delivery. Sometimes, however, especially in the submarine cable industry, revenue is recognized over time using the output method. The production method focuses on determining a nation's total output by identifying the total value of all goods and services produced by a nation. In terms of NOKIA, it means that the company seeks to value the products transferred to the customer and the right to payment for work completed by a specific date. The method varies from each contract depending on the situation. (Nokia 2019, 130) Sale of services Revenues from a service are recognized when the customer obtains the benefits of the service. Such services include maintenance, management of the customer's network or provision of network equipment. Service revenue is recognized over time as NOKIA performs those services during a fixed contract term and the customer continually receives the benefits. (Nokia 2019, 130) Sales of intellectual property licenses Revenue from the sale of a software license is recognized before delivery or acceptance of the software. This is due to the determination that each software version is distinct and the license for the software is granted when it exists at the time oftransfer or control of the client. Furthermore, revenues deriving from the license fee are recognized in accordance with the relevant contract. Therefore, revenue is recognized over time. (Nokia 2019, 130)Chapter SummaryNOKIA reached its peak in the late 1990s and 2000s, when it was the leading mobile phone provider. However, the management's poor strategic decisions led to a huge crisis in the company with the result that the company was unable to maintain its mobile division on its own. Furthermore, NOKIA failed to meet the changing needs of customers, introduced by Apple Inc. However, the company rebuilt and re-entered the mobile industry. (Doz 2017) The company could generate a profit and has been working on cost reduction programs. NOKIA has grouped its products into three categories for revenue recognition purposes. (Nokia 2019, 52-130)United States Accepted General Accounting PrinciplesUnited States Accepted General Accounting Principles, abbreviated US-GAAP, is one of the most widely used accounting standards in the capital markets worldwide. (PwC 2014, 1) The objective of the following section is to describe the objectives and scope of US-GAAP. Authority The US-GAAP codification was established and is overseen by the Financial Accounting Standards Boards, abbreviated FASB. The FASB is part of a group of trustees called the Financial Accounting Foundation. Additionally, the Securities and Exchange Commission (SEC) is the regulatory authority of the FASB. General accounting principles accepted by the United States must be applied by public companies located in the United States. Since many large players are based in the United States, it is one of the most widely used accounting principles in the capital markets. US-GAAP is a country-specific accounting standard shaped by business pressures. Therefore, it has specific standards that mainly benefit companies in the United States. For example the standard for pension and post-retirement benefits. (Hays 2015, 1) PrinciplesUS-GAAP uses the conceptual framework, designed to describe the nature, function and limitations of financial accounting and reporting. The FASB interprets that the conceptual framework is useful for solving difficult financial accounting problems by: Providing a set of premises as a basis, Providing detailed terminology, Helping to ask effective questions, Limiting areas of judgment, Deciding on disciplines (Flood 2016, 17- 18) The United States General Accepted Accounting Principles applies the rules-based principle. Rules-based means that the standard requires detailed guidelines, scope expectations, and a significant amount of application guidance. Therefore, it makes this standard more precise and limits the possibility of applying professional judgment or fraud. (Ghosh, Bairagi, and Mondal 2020, 2) Additionally, the standard's recognition principles describe the timing and measurement of items that become part of the accounting cycle and impact the financial statements. In other words, quantitative standards indicate that economic information must be reflected numerically. The disclosure principles determine non-quantifiable factors. Disclosure is important qualitative information for a complete set of financial statements. If such information were missing, it would impact the reader's decision-making process. Disclosures enhance the numerical data in written form by explaining accounting policies, uncertainties, etc. (Flood 2016, 4)Financial balance sheetsFinancial statements must be prepared on the assumption of business continuity. Going concern means that accounts and auditors must assume that the company will continue its operations into the next fiscal year. According to US-GAAP, thefinancial statements are made up of five different statements. The first is called the balance sheet or balance sheet. It shows a company's assets, liabilities, and shares. The second statement is the statement of net worth, which reports the change in net worth. Additionally, an entity must prepare an income statement, which highlights the business's revenues and expenses. The fourth statement is called the financial statement. The main purpose of the statement is to provide information on cash inflows and outflows. The statement is divided into three categories: operational, financial and investment. The last part of the balance sheet is the explanatory notes. The notes usually explain accounting principles and disclosures. Their main goal is to make other financial statements more understandable and provide detailed information. The balance sheet highlights the effect of an entity's transactions at a particular point in time. The income statement, retained earnings, comprehensive income, and cash flow describe a company's financial position during a specific period of time. (Flood 2016, 33-89) Chapter Summary The United States General Accounting Standards are a national accounting standard administered by the FASB. US-GAAP is one of the most widely used accounting standards in capital markets, as US-based companies are required to use the standard. (Hays 2015, 1) The US-GAAP standard is called the rules-based approach, which requires detailed guidelines and provides many rules for accountants using this standard. (Ghosh, Bairagi, and Mondal 2020, 2) Similar to IFRS, US-GAAP uses the conceptual framework. The framework should help answer complex accounting questions. The standard requires an entity, depending on its size, to provide five financial statements, showing the financial position of the enterprise at a particular time or point in time. The five statements are called the balance sheet, income statement, equity statement, cash flow statement and notes to the financial statements. (Flood 2016, 1-89)ASC 606 – Revenue from Contracts with CustomersRevenue arises from a company's general operations and is the most significant financial reporting measure. (Flood 2017, 2) This chapter describes the objectives of ASC 606, the revenue recognition standard under US-GAAP. Additionally, it provides an overview of the steps that need to be followed when recognizing revenue. Objective The result of a satisfied performance obligation is the creation of revenue. The obligation to perform is perfected when control of the product is transferred to the customer. (Hepp 2018, 1) ASC 606-10-10-1 describes the objective as: "establishing the principles that an entity must apply to provide useful information to users of financial statements about the nature, amount, timing and the uncertainty of revenues and cash flows arising from a contract with a customer”. (Flood 17, 12) The fundamental principle is that an entity is required to recognize revenues when the transfer of the good or service has occurred, to the amount that the entity expects the good or service to become in exchange for the product. This principle should show the asset and liability approach that this standard emphasizes that revenue is based on the exchange of assets and liabilities It focuses on the timing of cash flows. Entity can satisfy this approach by applying five steps. . Identify the contract with a customer Identify the performance obligations in the contract Determine the price of the transaction Assign the price of thetransaction Recognize revenue when or as the entity satisfies a performance obligation (Flood 17, 12) Contract Identification ASC 606 explains that a contract exists if it satisfies five criteria. The first criterion is that the contract is approved and committed by both parties. Furthermore, the rights of both parties must be identifiable, as must the payment terms. The contract must have commercial substance. Commercial substance means the future cash flows of a business change due to the contractual transaction. The final criterion is that payment collection must be probable. In US-GAAP probable can be defined as “likely to occur”, which, in numerical terms, is approximately 75%-80%. (Flood 2017, 29-30)Identifying Performance ObligationsA performance obligation is a promise to transfer a good or service to a customer. Therefore, the good or service must be distinct. The main objective is to decide to which unit of account the transaction price should be assigned. Furthermore, the goods or services identified in a contract may not be limited to the goods and services specified in the contract. Therefore, services arising from the company's business practices may be provided to the customer. (Flood 2017, 46)Determination of the transaction priceThe transaction price can only include amounts to which the entity has rights. It does not include, for example, sales taxes or third-party shipping charges. (Flood 2017, 61) Transaction Price Allocation When assigning transaction price, an entity must first determine the stand-alone price of the product. If an entity cannot observe the price itself, it must estimate the price. Each company uses a different method to estimate the price. (Flood 2017, 86) Revenue recognition An entity is allowed to recognize revenue when performance obligations are satisfied. This usually happens when the customer takes control of the product or service. (Flood 2017, 102) In the event that shipping and handling activities are performed before the customer has control over the product, the shipping and handling activities are necessary to fulfill the company's performance obligations. (Flood 17, 15-30) Chapter Summary The goal of ASC 606 is to provide useful revenue information regarding its amount, timing, and uncertainty. To properly recognize revenue and achieve goals, a company must use a five-step approach. The approach is identical to the five-step model under IFRS. (Flood 17, 12)Apple Inc.This chapter provides a practical example of a technology company reporting according to the US-GAAP financial reporting standard. APPLE was chosen because it is a direct competitor of NOKIA and its modern and innovative technology was one of the reasons why NOKIA had to abandon the mobile technology sector in the early 2000s. APPLE designs, produces and markets smartphones, personal computers, tablets, wearables and accessories. Furthermore, it guarantees a variety of related services. Tim Cook is the CEO of APPLE. (Levy 1998)HistoryAPPLE was founded in 1976 by Steve Jobs and Steve Wozniak. Their mission at that time was to create computers, which are small enough to have at home or in the office. The two entrepreneurs achieved their mission by identifying a gap in the technology sector, small computers, and building such computers. Thus the company's revenue jumped from $7.8 million in 1978 to $117 million in 1980. Steve Wozniak left the company in 1983 due to the different interests of the two CEOs. Steve Jobs launched the Macintosh, the most innovative product.