The Sea Soft Company, being a distributor of water softeners, has an understanding with its dealers on the mode of evaluations they can make regarding projected sales and revenues. On this basis, Sea Soft can estimate the likely value of sales and through this, it could come up with ways to plan future returns. This method allows the company to obtain a profit of 75% from its sold products.
The point that sticks out is that Sea Soft allows the dealers to return the softeners if they are damaged at the company’s expense. This happens if the damage takes place in the hands of dealers. The company also allows the return of unsold softeners within 90 days of their purchase at the expense of the seller, which at least cushions them from the negative consequences of unsold softeners.
The company needs to streamline some of its dealings with brokers to ensure that it can have a sound strategy. This would help it access revenues at all times. The company needs to renegotiate the modalities, which govern the return of damaged softeners so that more than 75% of softeners being sold currently can be disposed of safely. The company should also restructure the policy about the 90-day period that has been set aside for dealers to sell the softeners and submit revenue to the company. The company can readjust the period to 60 days so that it can factor in the expected revenue within a shorter time than it has been before (Braggs 55).
Recognizing revenue at the point of sale makes it easier for the company to keep track of volumes of sales. The company can use these figures from sales to strategize. The firm can increase its earnings in case it capitalizes on the figures (Braggs 65).
The act of recognizing revenue after the initial 12 months makes it possible for the company to carry out long-term plans. This would allow the firm to estimate revenues and profits (Braggs 67).
The third option offers more benefits to Sony because revenue is recognized once it has been confirmed as collected. The company’s cash flow situation is presented accurately because only payments that are received are factored in the overall revenue projections of the company (Braggs 69).
The first option of recognizing revenues at the point of sale makes it easier for the estimates to be overvalued because there is no guarantee that payments will be received within the estimated time. Buyers may fail to make payments within the expected time hence exposing the company to some cash flow problems (Braggs 71).
The second option makes it difficult for the company because the payment period is done gradually and it is subject to deferrals by buyers who may be unable to make all outstanding payments when they are expected to do so (Braggs 73).
The third option limits the company to recognize only revenues that have been paid out by buyers. The company is disadvantaged because it may not plan adequately. This is due to the existence of other revenue streams. This may affect the company negatively regarding its ability to push volumes (Braggs 75).
In conclusion, Sony can recognize revenues after payments have been made. The 12 months payment period can be reduced to between 6 months. This would ensure that customers pledge to make payments for the purchases as early as possible.
Works Cited
Bragg, Simon. Wiley Revenue Recognition: Rules and Scenarios. New York, NY: John Wiley & Sons, 2010. Print