Revenue Recognition Accounting Policy
General Electric records all sales of goods and services only when a firm sales agreement is in place, delivery has occurred or services have been rendered and collectibility of the fixed or determinable sales price is reasonably assured.
Arrangements for the sale of goods and services sometimes include multiple components. Most of General Electric's multiple component arrangements involve the sale of goods and services in the Healthcare segment. General Electric's arrangements with multiple components usually involve an upfront deliverable of large machinery or equipment and future service deliverables such as installation, commissioning, training or the future delivery of ancillary products. In most cases, the relative values of the undelivered components are not significant to the overall arrangement and are typically delivered within three to six months after the core product has been delivered. In such agreements, selling price is determined for each component and any difference between the total of the separate selling prices and total contract consideration (i.e. discount) is allocated pro rata across each of the components in the arrangement. The value assigned to each component is objectively determined and obtained primarily from sources such as the separate selling price for that or a similar item or from competitor prices for similar items. If such evidence is not available, General Electric uses best estimate of selling price, which is established consistent with the pricing strategy of the business and considers product configuration, geography, customer type, and other market specific factors.
Except for goods sold under long-term agreements, General Electric recognizes sales of goods under the provisions of U.S. Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 104, Revenue Recognition. General Electric often sells consumer products and computer hardware and software products with a right of return. General Electric uses accumulated experience to estimate and provide for such returns when General Electric records the sale. In situations where arrangements include customer acceptance provisions based on seller or customer-specified objective criteria, General Electric recognizes revenue when has reliably demonstrated that all specified acceptance criteria have been met or when formal acceptance occurs, respectively. In arrangements where General Electric provides goods for trial and evaluation purposes, General Electric only recognizes revenue after customer acceptance occurs. Unless otherwise noted, General Electric does not provide for anticipated losses before records sales.
General Electric recognizes revenue on agreements for sales of goods and services under power generation unit and uprate contracts; nuclear fuel assemblies; larger oil drilling equipment projects; aeroderivative unit contracts; military development contracts; locomotive production contracts; and long-term construction projects, using long-term construction and production contract accounting. General Electric estimates total long-term contract revenue net of price concessions as well as total contract costs. For goods sold under power generation unit and uprate contracts, nuclear fuel assemblies, aeroderivative unit contracts, military development contracts and locomotive production contracts, General Electric recognizes sales as General Electric completes major contract-specified deliverables, most often when customers receive title to the goods or accept the services as performed. For larger oil drilling equipment projects and long-term construction projects, General Electric recognizes sales based on progress towards contract completion measured by actual costs incurred in relation to estimate of total expected costs. General Electric measures long-term contract revenues by applying contract-specific estimated margin rates to incurred costs. General Electric routinely updates estimates of future costs for agreements in process and report any cumulative effects of such adjustments in current operations. General Electric provides for any loss that expects to incur on these agreements when that loss is probable.
General Electric recognizes revenue upon delivery for sales of aircraft engines, military propulsion equipment and related spare parts not sold under long-term product services agreements. Delivery of commercial engines, non-U.S. military equipment and all related spare parts occurs on shipment; delivery of military propulsion equipment sold to the U.S. Government or agencies thereof occurs upon receipt of a Material Inspection and Receiving Report, DD Form 250 or Memorandum of Shipment. Commercial aircraft engines are complex equipment manufactured to customer order under a variety of sometimes complex, long-term agreements. General Electric measures sales of commercial aircraft engines by applying contract-specific estimated margin rates to incurred costs. General Electric routinely updates estimates of future revenues and costs for commercial aircraft engine agreements in process and reports any cumulative effects of such adjustments in current operations. Significant components of General Electric's revenue and cost estimates include price concessions, performance-related guarantees as well as material, labor and overhead costs. General Electric measures revenue for military propulsion equipment and spare parts not subject to long-term product services agreements based on the specific contract on a specifically measured output basis. General Electric provides for any loss that expects to incur on these agreements when that loss is probable; consistent with industry practice, for commercial aircraft engines, General Electric makes such provision only if such losses are not recoverable from future highly probable sales of spare parts for those engines.
General Electric sells product services under long-term product maintenance or extended warranty agreements in Aviation, Transportation and Energy Infrastructure segments, where costs of performing services are incurred on other than a straight-line basis. General Electric also sells product services in Healthcare segment, where such costs generally are expected to be on a straight-line basis. For the Aviation, Energy and Transportation agreements, General Electric recognizes related sales based on the extent of progress towards completion measured by actual costs incurred in relation to total expected costs. General Electric routinely updates estimates of future costs for agreements in process and report any cumulative effects of such adjustments in current operations. For the Healthcare agreements, General Electric recognizes revenues on a straight-line basis and expense related costs as incurred. General Electric provides for any loss that General Electric expects to incur on any of these agreements when that loss is probable.
NBC Universal (NBCU), which General Electric deconsolidated on January 28, 2011, recorded broadcast and cable television and Internet advertising sales when advertisements were aired, net of provision for any viewer shortfalls (make goods). Sales from theatrical distribution of films were recorded as the films were exhibited; sales of home videos, net of a return provision, when the videos were delivered to and available for sale by retailers; fees from cable/satellite operators when services were provided; and licensing of film and television programming when the material was available for airing.
Source: General Electric Co., Annual Report
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