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Actually, I wasn't referring to gross vs. net revenue. I was referring to recognized revenue vs. cash on hand. If I can convince someone to give me $500 but I
by sunchild 15y ago
Actually, I wasn't referring to gross vs. net revenue. I was referring to recognized revenue vs. cash on hand. If I can convince someone to give me $500 but I owe it all back to them, my only revenue should be interest/proceeds from investment of the $500 when actually earned – but the $500 on hand is not counted as my revenue. If my obligation to repay the $500 were to end, then it would become revenue.
I believe there are accounting strategies that might be exceptions to this, but I've never encountered any public companies can get away with using them.
- tptacek 15y agoThere's a simple term for the issue you're describing: solvency. I don't think this is a rev rec issue. Like Patrick said upthread, Groupon is capitalizing on transaction float. They aren't borrowing money from people, claiming it as revenue, and then returning it. I'm not saying they're solvent or that they're a good business. I don't know whether they are or aren't.
- sunchild 15y agoYou're right: I re-read the original memo and I agree with you – he's addressing insolvency, not revenue. Leading up to an IPO, the key issue is solvency. I'm going to take my own advice and ignore the Groupon sideshow until it goes away.