Training—Accounting Tools and Practices
Your Role
You are a regional manager for Urban. You have recently brought a new district manager on board and want to ensure he has the knowledge and tools needed to effectively do his job. Develop a training manual (3-4 pages) to ensure new hires have a solid understanding of income statements, balance sheets, and the elements that go into them.
Requirements
Training materials requirements:
3–4 pages for a training manual.
• in addition to the training deck or manual materials, include:
o Title (page).
o References (page).
o Appendix with supporting materials
• At least two APA-formatted references.
The organization you work for is Urban Outfitters. Use the U.S. Securities and Exchange Commission website to find the Urban Outfitter’s 2016–2017 financial statement’s summary of significant accounting policies. Look at the data for 2015, 2016, and 2017 for the following examples of essential elements you need to cover with John and ensure his understanding.
• Advertising. Examine the criteria used to expense and capitalize advertising costs and where these costs appear in the financial statement.
• Store opening costs. Examine how store opening and organization costs were handled and where these costs appear in the financial statement.
• Website development costs. Examine the approaches taken during the application and infrastructure development stage and the planning and operating stage.
• Analyze the importance of Notes to financial statements in interpreting financial statements.
• Explain how the accounting method the company uses affects the financial statements. Explain the accounting method’s effect on specific financial statements clearly and with sufficient detail to demonstrate why the company chose it.
• Explain how the financial statements would differ if another method were used to capture the costs.
• Compares how two accounting methods differ in their effects on the financial statements and provides examples and details to clarify comparisons.
• If you have a preference for capitalizing or expensing these costs, explain why it is your preference.
SAMPLE ANSWER
Introduction
The regional managers at Urban outfitters prepared this manual intending to use it for training purposes for new hires on accounting tools and principles that are commonly used. This manual proposal aims at referencing and providing basic information aimed at supporting the knowledge of current and new employees.
Advertising Cost
In advertisements, costs are incurred when one advertises, such as making upfront payments for billboards, commercials, or newspaper ads. We categorize pre-paid advertisements in the current assets under the broader umbrella of the consolidated balance sheet. Now in situations where we use the direct to consumer advertising such as catalog printing, online markets, and postage for mailer alerts, we classify the cost in the segment called marketing expenses (Lewellen, 2019). Social media is a great place to advertise since you can build your page free and request followers.
Store Opening Costs
We expense all store opening costs as they are incurred which includes but is not limited to pieces of training, meeting, recruitments, expected salaries and travel. These costs will be located on the consolidated statement of income under “Selling, general and administrative expenses.” For a business to be successful, we must provide store leaders and sales associates with quantitative and qualitative incentives based on performance (Borad, 2015). For a successful opening of the store, we have to train and retain leaders who have high motivation and hire managers who have a vision for our merchandise.
Website Development Costs
There were no internal software costs incurred by our company during the financial years of 2015, 2016, and 2017 because all cost was in the business planning and operating stage. Registration of the domain name and actual development of the website is included in this cost. The stage of the development of infrastructure is not considered material. Consequently, we rely on brand recognition created by our direct marketing team to draw customers to our multi-channel operations.
Notes to Financial Statements
The primary purpose of notes to the financial statement is to clarify all the accounting methods used by our company. Also, reveal information that has occurred both before and after the close of the said accounting period. We group our operations into two reportable segments, the Retail segment, and the Wholesale segment. The information can be found in the Segment reporting section of the Consolidated Financial Statements.
Income Statement
The income statement reports the performance of the company over a specific accounting period. The financial performance shows how the business incurs revenues and expenses through both operating and non-operating activities. The company’s overall performance at a specific time period is recorded in the income statement. For the company’s publicly traded stocks, it records its earnings per share on the income statement. The income statement also shows net profit/loss for a specific period. The balance sheet covers the company’s income and expenses over the previous accounting period.
Balance Sheet
At Urban Outfitters, the balance sheet indicates the company’s assets along with its financial liabilities and the equity held by shareholders. The assets, shareholder equity, and liabilities are recorded in the balance sheet. The rates of return are computed during the capital structure evaluation. The balance statement provides a snapshot of what the company owes, owns, and is invested in the company. Assets = Liabilities + Shareholders’ Equity.
Methods of accounting
The two methods we used for Urban Outfitters are cash accounting and accrual accounting. The timing of when a sale is reported is depended on this information. Cash accounting refers to a method of accounting that records all receipts of payments received within the accounting period and records the expenses paid within the accounting period (U.S. Securities and Exchange Commission, 2016). Accrual accounting refers to revenue recognition as soon as earned and all expenses recognized when they are incurred. Cash revenue and expenses are recognized only when money changes hands. Accrual can only be used when an actual cash transaction is absent and is recorded with regard to revenue or expenses (Lubbe et al. 2019). At the same time, accrual accounting revenue when it is earned and expenses are billed.
Different Methods
If the period in question has a profit or loss, the accrual basis method will not be used but the cash accounting method. Urban Outfitters uses the methods of accrual accounting and cash accounting. Still, the company has the option to use hybrid accounting techniques, which uses accrual accounting partially and cash accounting partially as well. The benefit of hybrid accounting is that it allows the company to record sales transactions as they occur, which makes it easy to forecast and conduct trending estimates for future periods of accounting in a more accurate manner. Urban Outfitters Company may not have experienced any case of misappropriating materials and no financial risk from any goods lost. There are threats that the company could face, such as cyber-attacks and security breaches, that would have an adverse effect on the company and affect the normal day-to-day operations (Borad, 2015). There might also be litigations, fines, and penalties due to damaged relationships with the customer, employee, or investor.
Capitalizing vs. expensing
Current profitability is increased through capitalization. During the accounting period involving long term assets, if Urban Outfitters planned the sale or boost of end-year stock price, the cost would differ. Urban Outfitters’ profitability trends and the financial ratio would be affected. By using GAAP or IFRS, is possible to determine assets and expenses. Both operations that involve capitalization and expenses are the same, with a slight difference capable of creating a significant impact on the company’s financial parameters. It is vital that expenses are done as they are incurred, or they will be capitalized. In the case of depreciation and capitalization of costs, the smoothing pattern can be done on the reporting income. Therefore, capitalizing on the expense may be preferred.
Capitalizing increases the assets on the company’s balance sheet. In a world where acquisitions can happen at any given time, capitalizing is the most preferred method. It is always challenging to pull in a higher return margin on a company due to high expenses associated with capitalizing. Recorded on the cash flow statement records the capitalization as investing cash outflows. There are higher Cash flows from operations. Compared to expensing the expenditure during the initial year, there is higher profitability in this case (Black, 2016). There is also a high shareholder’s equity in comparison to initial expenses. The current profitability is lowered by expensing expenditures, but the trend is enhanced later, whereas capitalizing increases the current profits.
References
Black, E. L. (2016). The ethical reporting of NON-GAAP performance measures. Revista Contabilidade & Financas, 27(70), 7-11.
Borad, S. (2015). Capitalizing Versus Expensing Costs. Retrieved from: https://efinacemanagement.com/financial-accounting/capitalizing-versus-expensing-costs.
Lewellen, J. (2019). Predicting returns with financial ratios. Journal of Financial Economics, 74(2), 209-235.
Lubbe, I., Moddack, D. & Watson, A. (2019). Financial Accounting GAAP principles. OUP Catalogue
U.S. Securities and Exchange Commission (2016). Urban Outfitters. Retrieved from: https://www.sec.gov.
Collepals.com Plagiarism Free Papers
Are you looking for custom essay writing service or even dissertation writing services? Just request for our write my paper service, and we'll match you with the best essay writer in your subject! With an exceptional team of professional academic experts in a wide range of subjects, we can guarantee you an unrivaled quality of custom-written papers.
Get ZERO PLAGIARISM, HUMAN WRITTEN ESSAYS
Why Hire Collepals.com writers to do your paper?
Quality- We are experienced and have access to ample research materials.
We write plagiarism Free Content
Confidential- We never share or sell your personal information to third parties.
Support-Chat with us today! We are always waiting to answer all your questions.
