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Technology Stocks : 3DFX -- Ignore unavailable to you. Want to Upgrade?

To: c-horse who wrote (8421)	10/18/1998 7:11:00 AM
From: Michael G. Potter	Respond to of 16960

Typically you're allowed to record a sale when you have fulfilled all of your obligations and title has transfered. If you provide some sort of inventory price protection to your customers, and you can make a reasonable estimate of what the amount you'll have to pay will be, you should accrue for the amount (reduce sales is best, boost COGS is second best, increase selling expense is another option). Rebates also follow the accrual method. If your end customer has a substantial right to return and you expect much of what you shipped to be returned, then you shouldn't record a sale. That's what happens when you overstuff the channel and then your customers all start returning the goods. I think that 3dfx records the sale when they ship the chipset (and I agree with this practice). I haven't seen much evidence of them having to take back a bunch of chips and once they're mounted on a board I'm sure that 3dfx doesn't want them back. The recent Diamond shortfall was not accounting related, it was a lack of understanding of demand at teh current price point. The board makers all extrapolated the initial rush of sales into huge future sales and bought tons more chips. When sales slowed down, they ended up with enough chips that they didn't order more in Q3. Note that Diamond over compensated and lost sales in Q3 because they cut their inventory too low. Michael