Revenue Recognition for Facebook and twitter for the year 2021. Revenue is the largest item on the income statement, and we must assess it on a quantitative and qualitative basis.

Use horizontal analysis to identify any time trends.

Compare the horizontal analyses of the two companies.

Consider the current economic environment and the companies competitive landscape.

Given they operate in the same industry, you might expect similar revenue trends. Read the managements discussion and analysis (MD&A) section of the 10-K to learn how the companies senior managers explain revenue levels and changes. Our goal is to determine whether each companys revenue levels and changes seem appropriate and in line with external factors. Additional analysis: (a) If the company distinguishes among types of revenue on the income statement, use horizontal and vertical analyses to identify any changes in the product line mix or where sales are growing most quickly. Find the footnote on segment revenues and profits, and identify trends or significant changes. (b) Assess each companys revenue recognition policy by comparing it with the other and with those of some other close competitors. (c) Consider unearned revenue on the balance sheet. How big is it (common size), and is it fluctuating over time? (d) For companies that operate globally, determine the effect of foreign currency fluctuations on revenue. If these are substantial year after year, it might indicate that managers are not effectively hedging, and this would warrant additional investigation.