Summary:
In this article, by observing Microsoft’s first-quarter sales, we can say Microsoft is prospering. Thanks to the recent releases of Office 2010, Windows 7, and Xbox 360, Microsoft have reached sales around16.2 billion which is a 25% increase in profits since last year and had a net income that increased 51%. Sales of around $1.5 billion came from the new release of Windows 7 last year but had to be excluded to recognize the revenue and follow the GAAP of revenue recognition criteria. Revenue comparing to last year, rose 15% thanks to the new release of Microsoft Office 2010. Sales of the new Xbox 360 and its PCs are growing and out competing other companies in sales of their new electronic devices. Microsoft online services including msn and search engine Bing are making a lot of revenue, increasing services by 8% comparing to last year. However, Apple has increasing sales and for the first time, Apple had sales that topped Microsoft’s sales. As you can see, we can expect a bit of rivalry between the two companies, and they will start competing each other for sales.
Connection:
In terms of accounting, this article relates mostly to revenue and how the revenue recognition criteria is applied in situations like this. When sales are made in an accounting period, Microsoft has to record all the sales collected in order for the revenue to be recognized in the same period. This will also bring up another GAAP mentioned in chapter 2, which is the matching concept. Whenever there is revenue gained, there must be expenses that are related to the revenue. For example, advertising may be known as an expense because advertising helps Microsoft bring its products to the public and show the world what goods they have to meet the demands of the wants and needs of the people. These expenses must be matched by being recorded in the same accounting period as the revenue gained. When the company has to record these transactions, such as the revenue gained, the business has to record cash / accounts receivable as a debit and record sales as a credit in the journal. If the company is recording the entries for its expenses such as advertising expense, the company will put advertising expense as a debit and the cash / accounts payable will be recorded as a credit in the accounting journal. In the article, it states that Microsoft received $16.1 billion worth of sales and as a result of these high sales, Microsoft received $5.41 billion of net income. With these two pieces of information, we can calculate the profit margin ratio by dividing net income by the revenue produced by the profit. As a result of the calculation, the profit margin ratio for Microsoft’s earnings is 33.6%. In other words, this means that Microsoft earned as profit, 33.6% of the amount of its revenues. As a result of high profit in Microsoft, the net income of the income statement will rise significantly and this will cause the shareholders’ equity at the end of the accounting period to increase.
Reflection:
After reading this article, I realized what techniques are required to used to attract more consumers to buy one’s goods or services. In the past few years, just by examining Microsoft’s financial statements, we can say that Microsoft has been very successful in business. Microsoft has made brought many advanced technological changes to our world. Its PC, Xbox 360, Microsoft Office, and Windows 7 have all reached top sellers in the past few years with little competition. However recently Apple, a few days ago, just reached an all-time sales record of $20 billion, which is even greater than Microsoft’s sales. I strongly believe that both businesses in the future will be rivals to strive for success in business by competing in their sales. Now it all depends which company has better marketing skills by seeing who attracts more consumers. I believe that successful advertising, the media, and public speaking are the main factors I would advise them to take in consideration, if they wish to continue their successful progress in the future.
