Revenue Recognition

In prior blog entries weve stressed the importance of proper revenue recognition if you are considering an M&A event. This is always a topic of discussion with prospective clients, as we have been burned time and again by clients that said they had 5 or 25 million in revenue, when in fact the number was more like 4 or 21. In a recent discussion on this topic with a potential client, they told me they were very conservative on revenue recognition, a rare event in my experience. On further query, their conservative position was that they book all of their revenue up front and pay their taxes based on that amount.  This may be conservative regarding tax payment, but it is actually very aggressive when you look at properly booked GAAP revenue, which is often deferred until services are completed or products are actually delivered.  In their case, the tax bookings and the proper GAAP bookings were inconsistent. Make sure you understand the difference, and don't pay your taxes too early, or book revenue before its time.

Posted by , Chairman Emeritus on 30 October 2008
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