MBA FPX5010 Assessment 1 Training-Accounting Tools and Practices
Context
Assessment 1: Training-Accounting Tools and Practices
Student Name
MBA FPX5010
Capella University
Prof Name
Month Date, Year
Accounting Tools and Practise
The knowledge of commonly used accounting tools is vital for the newly hired managers including the income statement and the balance sheet. The new district manager sees the need for training to create balance sheets and which elements go into it to train the new employees. This report aims to develop a training manual that can be deployed to help the new employees to improve the chances of success of the new manager. The company can also use these materials in the presentation for future training needs. Therefore, my role as the regional manager of Urban Outfitters is to help the new district manager and other new employees on board to use accounting tools efficiently.
Accounting methods and Impact on Financial Statements
The organization uses accrual-based accounting system and to record profit and loss at the end of the month. The accrual-based accounting system allows the organization to records its revenues when they are earned. Similar, the company also records its costs or expenses when its consumers the advantage derived from these costs. This method is suitable regarding the size of the organization (as a medium-sized firm) and it also helps the financial officers to better determine the profitability for a specific accounting period. This means that the specific accounting method used by the organization allows them to match the sales in the same period. For example, the company matches the revenues it earns with the period with the expenses that were incurred. This means that if the revenue is realized in February, the accountant will realize it in the same month instead of waiting for the cash or bank check to arrive (Zhang, 2022). Similarly, the revenues will also be offset by expenses, which is why the company will get a clear idea of its overall profits for the period covered. In accrual-based accounting, the company matches payment has no impact to the revenue accounts.
How Financial Accounting Methods Differ in Impact
Mostly, organizations use two types of accounting methods such as cash-basis accounting and accrual accounting. In order to save the organization from a financial scandal, there is a need to understand the impact of their financial accounting method on financial statements (Bruno, 2018). Cash earnings of the organization can come through many sources such as checks, credit card receipts, and revenue type. The fact is that the accounting method used has a significant impact on the revenue reported in the income statement. It impacts both revenues and expenses which are subtracted from the revenues. The accrual-based method is used by the organization as it is recording the expenses that are accrued during the month but are actually paid later in cash. The benefit of accrual accounting is that it can give the company a better capability to match its revenues and expenses and can also give a picture to the managers how it is spending and earning.
For example, the company makes the recording of payroll taxes is different from cash-based accounting. In accrual-based accounting, the organization is setting aside every month the amount it expects to pay or disburse toward its employee tax bills. This transaction does not involve cash. The accountants record the tax liability in the Tax Liability Account even if it has not paid any cash related to that item. Therefore, the company unlike small businesses can use accrual-based accounting instead of cash-based accounting that reduces the net income as well as the net tax payments for the year. The cash-based accounting allows for more tax hits and net income is increased. Since accruals are company’s revenues earned or expenses incurred, they both influence the net income of the organization in the income statement. Similarly, the company’s balance sheet is also impacted by the accruals because the transactions are not based on cash and the company has non-cash assets and liabilities to record in the balance sheet.
This shows that the current policy of the company is viable because it follows a system that records expenses and revenues as soon as the transactions occur and does not wait for the cash to receive or to be paid. This shows that the accrual accounting method is a better method to measure the profits and the income of the organization and gives a clear picture at the end of the month or year. Therefore, this practice is recommended to the company (Bergmann, 2019).
Advertising Costs Policy of the Company
The company is using accrual-based accounting, this is the reason the expense is recognized as soon as it becomes a liability for the company or it becomes accrued (Azhar et al., 2022). This method is different from the cash-based accounting because the company does not record the advertising expense when it actually settles the account. There can be different types of expenses paid by the organization such as insurance expense, utilities expense, and salaries expense, etc. the criteria used by the company in this scenario is that it posts the invoice for the total amount as a prepaid cost. For instance, if the organization makes a contract with a local newspaper to buy monthly advertising for the next three months, the say the total cost of advertising is $1000 that will be recorded by debiting the prepaid expenses account (that will show in the income statement) while the accountant will also credit the accounts payable (that will go into the balance sheet).
Similarly, the company will also divide the total advertising expense with the number of months that are in the agreement with the newspaper. This helps the organization to calculate and record the monthly advertising expense. The company can however post the adjusting entry in the future at the end of each month to decrease its assets from the balance sheet and increase the advertising expense in the income statement.
References
Azhar, Z., Alfin, E., Kishan, K., & Asana, N. H. (2022). Accrual Accounting at Different Levels of the Public Sector: A Systematic Literature Review. Australian Accounting Review, 32(1), 36-62.
Bergmann, A., Fuchs, S., & Schuler, C. (2019). A theoretical basis for public sector accrual accounting research: current state and perspectives. Public Money & Management, 39(8), 560-570.
Bruno, A., & Lapsley, I. (2018). The emergence of an accounting practice: The fabrication of a government accrual accounting system. Accounting, Auditing & Accountability Journal.
Zhang, E. (2022). Accounting and statecraft in China: Accrual accounting for effective government rather than efficient market. Critical Perspectives on Accounting, 102419.