Cash vs. Accruals: The Case of Revenue Recognition at Cantaloupe Systems

Description

Cantaloupe Systems expected to celebrate its first quarterly profit, and the company’s proprietary machine-to-machine communication technology was a hit with owners of vending machines—and investors. Cantaloupe’s systems provided real-time sales data, allowing vending machine operators to efficiently pre-pack the exact items needed for each machine before leaving the warehouse that day. But Cantaloupe’s auditors threw the company a curve ball during a routine audit, insisting that the revenue recognition policy be changed in a way which would significantly reduce Cantaloupe’s revenue growth and profit. Cantaloupe’s leaders felt blindsided by this change in revenue recognition—wasn’t their current accounting policy a more accurate picture of the firm’s economic activities? Most importantly, they wondered how a change in revenue recognition would affect investors’ valuation of the company and the incentives of their sales force as well as other aspects of their operations.

Learning Objective

This case is designed to help students evaluate how a change in revenue affects a firm’s financial statements and understand the far-reaching consequences of how performance is measured for fundraising, employee incentives, product pricing and product development strategy.

Keywords

Financial accounting Fundraising Internet of Things Performance measurement Revenue recognition start-up