Microsoft sells its corporate customers large computer systems that include a three-year service contract.Microsoft promises that for three years it will update the systems whenever the customers need modifications and that it will also provide extensive customer support.Microsoft has chosen to recognize all revenue for these systems over the three-year life of the service contracts rather than when the systems are installed.Microsoft's accounting choice would be considered ________.

Question

Quizplus · Accepted Answer

Microsoft's choice to recognize revenue over the three-year life of the service contracts rather than at the point of installation is considered conservative because it spreads the recognition of revenue over time, matching it with the period over which services are provided, rather than recognizing it all upfront. This approach tends to understate short-term earnings but is more reflective of the ongoing earnings process associated with the service contract.

Microsoft Sells Its Corporate Customers Large Computer Systems That Include