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