The company I decided to use for our project is Amazon. Their stock
ticker is AMZN with a stock price of $116.33 as of today July 7, 2022
(Yahoo Finance, 2022). The industry they are classified in would be
internet retail. On July 5, 1994, Jeff Bezos founded Amazon from his
garage in Bellevue, Washington (McFadden, 2021). He intended on
making it an online marketplace for books, but it quickly expanded
into more. Today you can purchase just about anything on Amazon as
it has become a one-stop shop.
On Amazon’s balance sheet, Amazon Prime memberships, and
Amazon Web Services (AWS) are classified under Unearned
Revenue. Unearned revenue is money received by a company or
individual for a service or product that has yet to be provided or
delivered. It is recorded as a liability because it represents a debt
owed to the customer (Liberto, 2022). An example of unearned
revenue for Amazon is Amazon Prime as members pay $99 upfront
for the entire year and Amazon takes the cash and puts it on the
balance sheet and then amortizes the $99 of revenue over 12
months of membership (Levy, 2017). In terms of valuation policy
under unearned revenue for Amazon, it states they have
performance obligations related to AWS associated with
commitments in customer contracts for future services that have not
yet been recognized in their financial statements which leaves a
weighted average remaining life of long-term contracts of 3.5 years
(SEC, 2018). I think this option is ok for Amazon to show future
revenue and growth but can look sketchy for investors because they
are looking at the company’s revenue as a total and not considering
the unearned revenue which will show them inaccurate reports if
they are not including the unearned revenue.
References
Levy, A. (2017). What is Unearned Revenue, and Why Should Amazon
Investors Care About It? Retrieved on July 7, 2022, from:
https://www.fool.com/investing/2017/02/09/what-is-unearned-
revenue-and-why-should-amazon-inv.aspx
Liberto, D. (2022). Unearned Revenue. Retrieved on July 7, 2022,
from:
https://www.investopedia.com/terms/u/unearnedrevenue.asp#:~:te
xt=Key%20Takeaways-
,Unearned%20revenue%20is%20money%20received%20by%20an%
20individual%20or%20company,debt%20owed%20to%20the%20cu
stomer.
McFadden, C. (2021). A Very Brief History of Amazon: The Everything
Store. Retrieved on July 7, 2022, from:
https://interestingengineering.com/a-very-brief-history-of-amazon-
the-everything-store
SEC. (2018). Amazon.com, Inc. Retrieved on July 7, 2022, from:
https://www.sec.gov/Archives/edgar/data/1018724/00010187241
8000108/amzn-20180630x10q.htm
Yahoo Finance. (2022). Amazon.com, Inc. Retrieved on July 7, 2022,
from: https://finance.yahoo.com/quote/AMZN?p=AMZN
