Apple 2015 Annual Report Download - page 46

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, accessories, 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 Apple-compatible products, including application
software and various accessories through its online and retail stores. The Company sells to consumers, small and mid-sized businesses
and 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. In the opinion of the Company’s management, the consolidated financial statements reflect all adjustments, which
are normal and recurring in nature, necessary for fair financial statement presentation. 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.
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 2015,
2014 and 2013 ended on September 26, 2015, September 27, 2014 and September 28, 2013, respectively. An additional week is
included in the first fiscal quarter approximately every six years to realign fiscal quarters with calendar quarters. Fiscal years 2015, 2014
and 2013 each spanned 52 weeks. Unless otherwise stated, references to particular years, quarters, months and periods refer to the
Company’s fiscal years ended in September and the associated quarters, months and periods of those fiscal years.
Revenue Recognition
Net sales consist primarily of revenue from the sale of hardware, software, digital content and applications, accessories, 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, risk of loss and rewards of ownership 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 retains a portion of the risk of loss on
these sales during transit. For payment terms in excess of the Company’s standard payment terms, revenue is recognized as payments
become due unless the Company has positive evidence that the sales price is fixed or determinable, such as a successful history of
collection, without concession, on comparable arrangements. 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.
For the sale of most third-party products, the Company recognizes revenue based on the gross amount billed to customers because the
Company establishes its own pricing for such products, retains related inventory risk for physical products, is the primary obligor to the
customer and assumes the credit risk for amounts billed to its customers. For third-party applications sold through the App Store and Mac
App Store and certain digital content sold through the iTunes Store, the Company does not determine the selling price of the products
and is not the primary obligor to the customer. Therefore, the Company accounts for such sales on a net basis by recognizing in net sales
only the commission it retains from each sale. The portion of the gross amount billed to customers that is remitted by the Company to
third-party app developers and certain digital content owners is not reflected in the Company’s Consolidated Statements of Operations.
Apple Inc. | 2015 Form 10-K | 44