Accounting Tools And Practices

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Develop either a training deck (12-15 slides) or 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.

 

Introduction
This portfolio work project will help you to not only better understand commonly used accounting tools, but it will also give you the opportunity to use your skills and experience by preparing training materials to train someone else.

Scenario
You work for an organization that is seeking growth and recently has hired new district managers to assist in this growth. In talking to other regional managers, you have heard that some district managers do not have a thorough understanding of commonly used accounting tools including an income statement and balance sheet. You have a new district manager hire, John, and see the need to do some training with him so he has a solid understanding of income statements, balance sheets, and the elements that go into them, including advertising costs, Web development costs, and store opening costs.

In preparing to train your new hire, you have determined that the use of examples (a picture is worth a thousand words) can be a great approach to use. So you have decided to gather some examples from the company’s summary of significant accounting policies from its latest financial statements.

You may apply this scenario to either Option 1 or Option 2, described in Requirements below.

Your Role
You are a regional manager for Urban Outfitters or your selected organization and oversee a number of districts. 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.

Requirements
Option 1:
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.
Option 2:
Use a firm or scenario of your choosing.

Before choosing a company, read the assessment thoroughly to ensure:

The company fits the assessment requirements.
You have access to the financial statement’s summary of significant accounting policies and the Note disclosures from which you are drawing your materials. Include this information in the appendix for reference.
You can distribute the data without disclosing confidential company information.
Training Materials
As you prepare your training materials for John, use the examples you collected from the company’s Notes to financial documents to illustrate how you address the following items:

Explain how one or more of the following costs are captured:
Advertising.
Store opening. If store opening costs were capitalized, over what time period would you amortize them? Explain why you selected this time period.
Website development.
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 how the financial statements would differ if another method were used to capture the costs.
If you have a preference for capitalizing or expensing these costs, explain why it is your preference

Sample Solution

Option 1: Urban Outfitters Financial Statement Analysis (Training Deck)

Slide 1: Introduction

  • Welcome, John! Today we’ll dive into the heart of financial reporting: Income Statements and Balance Sheets.
  • These documents tell the story of our company’s financial health, and understanding them is crucial for your success.

Slide 2: Income Statement Basics

  • Tracks revenues and expenses over a specific period.
  • Shows how much profit (or loss) we made.
  • Key elements: Revenues, Cost of Goods Sold, Operating Expenses, Net Income.

Slide 3: Advertising Costs (Urban Outfitters Example)

  • Expensing vs. Capitalization:
    • Expensing: Costs incurred for short-term campaigns or promotions, considered immediate expenses.
    • Capitalization: Costs for long-term assets like brand development or website upgrades, amortized over their useful life.
  • Urban Outfitters:
    • Mostly expensed in Selling and Administrative Expenses.
    • Some capitalized in Intangible Assets if meeting specific criteria.

Slide 4: Store Opening Costs (Urban Outfitters Example)

  • Capitalized as long-term assets if exceeding a certain threshold.
  • Amortized over the expected useful life of the store (estimated 5-10 years).
  • Appears in Property and Equipment section of the Balance Sheet.

Slide 5: Website Development Costs (Urban Outfitters Example)

  • Application and Infrastructure Development:
    • Capitalized as long-term assets if exceeding a certain threshold.
    • Amortized over the expected useful life of the website (estimated 3-5 years).
  • Planning and Operating Stage:
    • Expensed as incurred, considered immediate expenses.

Slide 6: Notes to Financial Statements

  • Crucial for understanding accounting policies and disclosures.
  • Provide additional details about specific line items and asset valuations.
  • Refer to the Notes when interpreting financial data.

Slide 7: Accounting Method Impact

  • Different accounting methods can affect reported financial results.
  • For example, capitalizing vs. expensing costs impacts reported profit and asset values.
  • Understanding the chosen method is key to accurate analysis.

Slide 8: Alternative Methods and Differences (Website Example)

  • If website development costs were fully expensed:
    • Higher reported expenses in the year incurred.
    • Lower reported assets and depreciation expense in subsequent years.
  • Evaluating the impact of different methods helps make informed decisions.

Slide 9: Your Role in Financial Analysis

  • Utilize your district data to track performance and identify trends.
  • Understand how your actions impact the financial statements.
  • Communicate financial information effectively to team members and stakeholders.

Slide 10: Conclusion

  • Mastering financial statements empowers you to make data-driven decisions.
  • Feel free to ask questions and explore further!

Additional Slides (Optional):

  • Provide specific examples from Urban Outfitters’ financial statements.
  • Include real-world scenarios to illustrate the concepts.
  • Offer resources for further learning and exploration.

This training deck provides a basic framework for understanding income statements, balance sheets, and key accounting practices using Urban Outfitters as an example. Remember to adapt the content and examples to your specific company and audience for a more tailored and impactful training session.

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