Apple 2011 Annual Report Download - page 49

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies
Apple Inc. and its wholly-owned subsidiaries (collectively “Apple” or the “Company”)
designs, manufactures, and markets mobile
communication and media devices, personal computers, and portable digital music players, and sells a variety of related software, services,
peripherals, networking solutions, and third-
party digital content and applications. The Company sells its products worldwide through its retail
stores, online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers and value-
added
resellers. In addition, the Company sells a variety of third-
party iPhone, iPad, Mac, and iPod compatible products including application software,
printers, storage devices, speakers, headphones, and various other accessories and supplies through its online and retail stores. The Company
sells to consumers, small and mid-sized businesses, education, enterprise and government customers.
Basis of Presentation and Preparation
The accompanying consolidated financial statements include the accounts of the Company. Intercompany accounts and transactions have been
eliminated. The preparation of these consolidated financial statements in conformity with U.S. generally accepted accounting principles
(“GAAP”)
requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements
and accompanying notes. Actual results could differ materially from those estimates. Certain prior year amounts in the consolidated financial
statements and notes thereto have been reclassified to conform to the current year’s presentation.
The Company’s fiscal year is the 52 or 53-week period that ends on the last Saturday of September. The Company’
s fiscal years 2011, 2010 and
2009 ended on September 24, 2011, September 25, 2010 and September 26, 2009, respectively, and included 52 weeks each. An additional week
is included in the first fiscal quarter approximately every six years to realign fiscal quarters with calendar quarters. Fiscal year 2012 will end on
September 29, 2012, and will span 53 weeks, with a 14th week added to the first quarter of 2012. Unless otherwise stated, references to
particular years or quarters refer to the Company’s fiscal years ended in September and the associated quarters of those fiscal years.
During the first quarter of 2011, the Company adopted the Financial Accounting Standard Board’s (“FASB”)
new accounting standard on
consolidation of variable interest entities. This new accounting standard eliminates the mandatory quantitative approach in determining control
for evaluating whether variable interest entities need to be consolidated in favor of a qualitative analysis, and requires an ongoing
reassessment of control over such entities. The adoption of this new accounting standard did not impact the Company’
s consolidated financial
statements.
Revenue Recognition
Net sales consist primarily of revenue from the sale of hardware, software, digital content and applications, peripherals, and service and support
contracts. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or
determinable, and collection is probable. Product is considered delivered to the customer once it has been shipped and title and risk of loss have
been transferred. For most of the Company’
s product sales, these criteria are met at the time the product is shipped. For online sales to
individuals, for some sales to education customers in the U.S., and for certain other sales, the Company defers revenue until the customer
receives the product because the Company legally retains a portion of the risk of loss on these sales during transit. The Company recognizes
revenue from the sale of hardware products, software bundled with hardware that is essential to the functionality of the hardware, and third-
party
digital content sold on the iTunes Store in accordance with general revenue recognition accounting guidance. The Company recognizes revenue
in accordance with industry specific software accounting guidance for the following types of sales transactions: (i) standalone sales of software
products, (ii) sales of software upgrades and (iii) sales of software bundled with hardware not essential to the functionality of the hardware.
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