In addition to the numbers on the income statement and the balance sheet, companies are required to disclose details in the notes that follow the financial statements, including things like:

• Contracts with customers
• Revenue recognized from contracts with customers
• Disaggregated revenue into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors
• Contract balances for opening and closing balances of receivables, contract assets, and contract liabilities
• Method(s) used to recognize revenue for performance obligations satisfied over time
• Significant judgments, and changes in judgments, in applying the guidance
• The timing of satisfying performance obligations
• Determining the transaction price and allocating amounts to performance obligations
• Any assets recognized from the costs to obtain or fulfill a contract with a customer

Below is a portion of footnote 2 from the Caterpillar annual report for 2019. See if you can identify the components of revenue recognition from Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606).

2. Sales and revenue recognition

A. Sales of Machinery, Energy & Transportation

Sales of ME&T are recognized when all the following criteria are satisfied: (i) a contract with an independently owned and operated dealer or an end user exists which has commercial substance; (ii) it is probable we will collect the amount charged to the dealer or end user; and (iii) we have completed our performance obligation whereby the dealer or end user has obtained control of the product. A contract with commercial substance exists once we receive and accept a purchase order under a dealer sales agreement, or once we enter into a contract with an end user. If collectibility is not probable, the sale is deferred and not recognized until collection is probable or payment is received. Control of our products typically transfers when title and risk of ownership of the product has transferred to the dealer or end user. Typically, where product is produced and sold in the same country, title and risk of ownership transfer when the product is shipped. Products that are exported from a country for sale typically transfer title and risk of ownership at the border of the destination country.

The footnote goes on for another page describing the nuances of recognizing revenue for remanufacturing operations, warranties, and financing. (Caterpillar, Inc. Annual Report for 2019 Download PDF pp. 60–61).

In the Notes to Financial Statement for Harley-Davidson, Inc. for the fiscal year ended December 31, 2019, on page 52, the company states:

Accounts Receivable, net – The Company’s motorcycles and related products are sold to independent dealers outside the U.S. and Canada generally on open account and the resulting receivables are included in Accounts receivable, net on the Consolidated balance sheets. The allowance for doubtful accounts deducted from total accounts receivable was $4.9 million and $4.0 million as of December 31, 2019 and 2018, respectively. Accounts receivable are written down once management determines that the specific customer does not have the ability to repay the balance in full.

Trade receivables on the balance sheet (page 48) were $259.3 million for 2019 and $306.5 million for 2018. Revenues were $5.4 billion and $5.7 billion, respectively. Total bad debt expense was not disclosed, although Note 6 includes an extensive analysis of the financing receivables.

With regard to calculating the allowance for doubtful accounts and other estimated expenses, in the Summary of Significant Accounting Policies, Harley-Davidson, Inc. includes the following disclaimer:

Use of Estimates – The preparation of financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.

These are just examples of disclosures related to accounts receivable and revenue. You should be able to look up the financial statements of any public company and locate the notes and disclosures related to these two topics. When you do, you’ll see that any one of these topics can be much more complex and detailed than just this basic overview has given. Accountants are always learning and studying to stay current with new pronouncements and to become better at communicating, not just with numbers, but with detailed explanations as well.