Cash Flows and Revenue Term Paper

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Nike

In its 2016 Form 10-K, on page 106, Nike notes its policy with respect to depreciation as follows:

Depreciation is determined on a straight line basis for buildings and leasehold improvements over 2 to 40 years for machinery and equipment over 2 to 15 years.

Depreciation and amortization of assets used in manufacturing, warehousing, and product distribution are recorded in Cost of Sales. Depreciation and amortization of other assets are recorded in Operating Overhead Expense.

If Nike has incorrectly estimated the useful life, and the asset is impaired, it has a process for the impairment of such assets. The company would impair the asset on its remaining book value less the expected future cash flows from having the asset. If the asset is useful for longer than its book value, there is nothing that needs to be done. The purchase has been fully depreciated, so the asset has no more book value -- there is no expense associated with whatever economic benefit that such an asset has as the company has already received all of the economic benefit of the purchase.

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A balance sheet is the statement that highlights the assets, liabilities and equity of the company. The principle is that all assets of the company are acquired either via debt or via equity. The value of the company is the value of the assets less the debts that the company has.

The statement of cash flows is the statement that highlights the cash flows. It is divided into three different types of cash flows -- operating, investing and financing -- to reflect these distinctly different activity types.

The income statement highlights the accounting income for the company. This starts with the revenues, from which different expenses are deducted. At the end of the income statement is the net income for the company.

Revenue recognition policies are the rules by which revenue is recognized. This includes the timing of revenue transactions in particular -- as in determining at what point revenue is recorded.

Cash is cash., and this category usually includes cash equivalents, which are money market securities of less than three months.

Accounts receivable are sales that have been made.....

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