GE 2005 Annual Report Download - page 81

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The effects of translating to U.S. dollars the financial statements of non-U.S. affiliates whose functional
currency is the local currency are included in shareowners’ equity. Asset and liability accounts are translated at year-
end exchange rates, while revenues and expenses are translated at average rates for the period.
Effects of transactions between related companies are eliminated. Transactions between GE and GECS are
immaterial and consist primarily of GECS services for material procurement and trade receivables management,
buildings and equipment leased by GE from GECS, information technology (IT) and other services sold to GECS by
GE, aircraft engines manufactured by GE that are installed on aircraft purchased by GECS from third-party
producers for lease to others, medical equipment manufactured by GE that is leased by GECS to others, and various
investments and loans.
Preparing financial statements in conformity with GAAP requires us to make estimates and assumptions
that affect reported amounts and related disclosures. Actual results could differ from those estimates.
Sales of goods and services
We record sales of goods when a firm sales agreement is in place, delivery has occurred and collectibility of the
fixed or determinable sales price is reasonably assured. If customer acceptance of products is not assured, we record
sales only upon formal customer acceptance.
Consumer lighting products, home videos and computer hardware and software products are often sold
with a right of return. Accumulated experience is used to estimate and provide for such returns when we record the
sale.
Sales of goods in the Industrial businesses typically do not include multiple product and/or services
elements. In contrast, sales of goods in the Infrastructure and Healthcare businesses sometimes include multiple
components and sometimes include services such as installation. In such contracts, amounts assigned to each
component are based on that component’ s objectively determined fair value, such as the sales price for the
component when it is sold separately or competitor prices for similar components. Sales are recognized individually
for delivered components only if they have value to the customer on a standalone basis and the undelivered
components have objectively determined fair values and are not essential to the functionality of the delivered
components. When undelivered components are inconsequential or perfunctory and not essential to the functionality
of the delivered components (like certain training commitments), we recognize sales on the total contract and make
a provision for the cost of the incomplete components.
We record sales of product services, certain power generation equipment, military aircraft engines,
Healthcare IT projects and water treatment equipment in accordance with their respective contracts. For long-term
product services agreements, we use estimated contract profit rates to record sales as work is performed. For other
contracts, we use estimated contract profit rates to record sales as major components are completed and delivered to
customers. Estimates are subject to revisions. Revisions that affect an agreement’ s total estimated profitability result
in an immediate adjustment of earnings. We provide for any loss when that loss is probable.
We expense costs to acquire or originate sales agreements as incurred.