ShmoopTube

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finance a la shmoop what are revenues? well revenues are this magical thing.

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they happen when you sell stuff from your business. 14 opera singing [man shrugs]

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Teddy bears, forty bucks each five hundred sixty dollars. total nine custom-built

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Japanese body pillows eighty bucks each seven hundred twenty dollars total. a

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business so weird you can't tell your family and friends about it? [man peeks from behind a door]

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priceless. revenues are what Wall Street analysts call top-line. because on an

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income statement shows up right here. seems simple right? but from an

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accounting perspective revenues get recognized in different ways. like let's [accounting document shown.]

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say you sell a season pass to a golf course for five hundred bucks. on this

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golf course happens to be somewhere in the Arctic Circle so the season is only

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five months long. unless you like playing in the snow and stressing about hungry

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polar bears and are basically a complete idiot. so the customer pays you five [man golfs in the snow]

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hundred bucks up front to play as much as they want on your course. you made the

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sale of five hundred dollars on May 1st, the first day of the season, but are

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those all recognized as revenues that day? well it depends if there is no [definitions on screen]

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money-back guarantee and you keep the five hundred bucks no matter what, well

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then maybe yeah. you can recognize all of those revenues then upfront and you're

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done. but what if there's a fine print that [man and woman exchange documents]

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says if you play zero times in a month well you don't have to pay for that

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month and you get a refund at the end of the season in October.

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well you can't recognize the revenue upfront now, at least not all of it. [ATM machine]

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instead you can recognize a hundred dollars worth of revenues each time

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someone clearly plays on your course. ie even one round of golf confirms that

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they have used the hundred dollar all-you-can-eat in a month deal on your

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course. you can imagine then that well you have to reserve some kind of money [man drives golf cart]

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back refund set of payments when the season is over and you just have to

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track every single season and pass fires progress on your golf course. all right

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well the key idea here is that revenues don't necessarily equal sales,

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and that recognizing revenues usually entails that the revenues are [man smiles from golf course]

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irrevocable. that is they have passed their money-back guarantee period and

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will remain in your little piggy bank until next season. and what do you do

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with all those revenues? well ever hear of polar bear repellent? yeah will do [people run from polar bear]

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wonders for customer retention rates.

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