Training Accounting Tools and Practices

• Slide 1:

Greetings, everyone! My name is [Student Name] and this presentation is about the accounting tools and practices. Anyone in any industry must be able to control these aspects to handle financial documentation proficiently. As technology advances and business organizations incorporate the use of computers and advanced technology in their accounting systems it becomes important to understand the modern accounting software and practices. Comprehensive training prepares people to dissect complex financial data, monitor compliance with the rules, and make sound strategic choices – factors that are vital for any business organization.

• Slide 2:

About the Company

Urban Outfitters was founded in 1970 in a small area across from the University of Pennsylvania; the store concept was unique retail appeal and social space for art school students. The first store has grown from a single store to a small department store with a wide variety of products and services and includes restaurants, music, and social places that create a friendly atmosphere.

Urban Outfitters is now operating over 200 stores in the United States, Canada, and Europe and offers an entertaining shopping experience in wearable fashion for women and men with clothing, accessories, and home essentials, with a focus on creativity and cultural sensitivity (Urban Outfitters, n.d.). The idea of Urban Outfitters as a meeting point for similar-minded people and social networking continues to exist. The company supports its customers and their ideals by offering social media, events, and community programs, and encouraging entrepreneurship.

Capturing Costs

• Slide 3:

There are various methods adopted by companies in the management of operational costs to enhance accountability in the presentation of financial statements. It is noteworthy that Urban Outfitters increasingly charges advertising, store opening, and website development costs to the income statement as incurred, which is considered conservative. All advertising costs are expensed out in the period incurred by standard accounting practice where future economic benefits of the expenses are uncertain, including by Urban Outfitters.

MBA FPX 5010 Assessment 1 Training Accounting Tools and Practices

The company’s advertising expenses for the fiscal years 2015, 2016, and 2017 were $$103,882, $114,104, and $127,159 respectively (U.S. Securities and Exchange Commission, n.d.). These amounts are reported under the line “Selling, General and Administrative Expenses” in the Consolidated Statements of Income. These costs are expensed in the income statement and while they lower the company’s net income in the short-term, they do not mislead stakeholders about the value of assets or future economic benefits.

• Slide 4:

All store opening and organization costs, such as travel, training, recruiting, and salaries, are expensed as they arise. These costs also fall under the Selling, General, and Administrative Expenses” (U.S. Securities and Exchange Commission, n.d.).

By expensing the costs of opening stores right away, Urban Outfitters gives investors a clear picture of the company’s operations and does not capitalize on costs which might distort the asset figures. This approach is consistent with the company’s strategic plan to report the current operating expenses in the current period and not defer them to other periods.

• Slide 5:

Website development costs at Urban Outfitters follow a two-stage model. Costs incurred during the planning and operating stages, such as web creative expenses, are expensed immediately. For the fiscal years ended 2015, 2016, and 2017, web creative expenses were $27,183, $32,003, and $31,237 respectively, and are reported under ‘Selling, General and administrative expenses.

While costs that are otherwise appropriately allocated to the application and infrastructure development stage may be capitalized, no such costs were capitalized by Urban Outfitters in these years as they were immaterial. This method helps ensure that costs are taken and reported in the period that they are incurred hence proper financial reporting. By taking these costs as and when they accrue, Urban Outfitters does not overstate its asset value and gives a true picture of its present-day overhead costs.

Notes Significance to Financial Statements

• Slide 6:

The accompanying notes to financial statements are very important in understanding the financial position and operating environment of an enterprise. They explain the accounting policies and procedures used in preparing the financial statements and guide how certain costs – such as advertising, new store initiatives, or website development – are treated (Rep, 2021).

By identifying these practices, stakeholders can better understand the financial data since different methods can greatly affect the outcomes. Also, these notes contain other necessary details which may not be easily seen from the main financial statements. For example, Urban Outfitters’ policy of capitalizing none of the costs associated with store openings and advertising reflects conservative accounting. Lacking this context, stakeholders could easily misjudge the company’s financial health or misinterpret how reported expenses affect its operations.

• Slide 7:

The notes also provide additional information on certain line items which analyzes major expenses, sources of income, and obligations. For example, broken-down information on the amount spent on web development provides information on the company’s investment in digital structures which are critical in the retail industry. Notes can reveal prospective obligations, contingencies, and risks that can affect the financial performance of a business such as lease commitments associated with store openings (Oliveira et al., 2021). This information is useful to investors who wish to determine the company’s future cash flow position.

MBA FPX 5010 Assessment 1 Training Accounting Tools and Practices

Compliance and regulatory information are other information that is contained in the notes. They describe how the company complies with the accounting standards and other regulations which is crucial in evaluating the accuracy and reliability of the financial statements. For Urban Outfitters, understanding what is capitalized and what is expensed helps in building confidence in the reported numbers.

Lastly, the notes provide additional measures or other performance measures that can be used to assess performance from different perspectives more often. Using EBITDA or increase in comparable store sales is important for making comparisons over time or with other similar stores (Herr et al., 2022). In other words, these notes to financial statements provide valuable information that enhances understanding and assessment of the financial position of a business entity.

Impact on Financial Statements

• Slide 8:

Urban Outfitters has adopted the accrual accounting method, which recognizes revenues and expenses at the time when they are earned or incurred, respectively. This technique provides a better understanding of the company’s financial position and results, which helps the stakeholders to make rational decisions (Malau et al., 2022). This approach enhances the correlation between income and expense recognition and the economic activities that generate them, thus improving the assessment of the company’s efficiency and profitability in the long run.

• Slide 9:

Income Statement

The use of accrual accounting affects Urban Outfitters’ net income in a big way. When the company accounts for expenses based on the actual expenses incurred, the company may realize a lower net income, especially during advertising campaigns or new store openings (Partini & Perdana, 2022). While this would lead to lower profits being recorded in the business in the short run, it paints a better and most probable picture of the operational costs of the business, thereby giving a more accurate picture of the financial health of the business.

Balance Sheet

In the balance sheet, only those costs that have been capitalized are recorded under the assets. Urban Outfitters has not taken advantage of large software development costs in the last few years, which could make its asset figure lower than it would be if the company had capitalized on these costs. This conservative approach avoids the overvaluation of assets and thus gives the stakeholders a correct picture of the financial position of the company (Rangkuti & Suboh, 2024). It helps to achieve a reasonable assessment of the balance sheet and the company’s financial position

Cash Flow Statement

The accrual method gives a different perspective on cash flows than the cash-based method. For example, costs may be accrued before cash is paid, impacting the net operating cash flows (Rangkuti & Suboh, 2024). However, this approach gives a more detailed and wider perspective of the organization’s financial performance over time, including all the sources of income and amount of liabilities. It is also important to adopt this wider perspective of the business to evaluate its stability.

• Slide 10:

Why Choose It

The use of the accrual basis accounting method has a close relationship with the financial statements of Urban Outfitters. This method of revenue and expense recognition is more accurate in portraying the company’s performance and financial status compared to the cash basis (Malau et al., 2022). It assists the stakeholders in decision-making since they have good insight into the company’s cost structure, profitability, and management of assets. The general approach to charging operational expenses as the expense, together with the more cautious approach to capitalizing long-term relevant investments, helps provide accurate and clear financial reporting.

Accounting Methods

• Slide 11:

If Urban Outfitters were to switch from the current accrual-based method of accounting to the cash-based accounting method, the company’s financial statements would look very different in terms of cost and revenue recognition. According to the accrual approach, revenues and expenses are recorded when they occur regardless of the time when actual cash is received or paid (Rangkuti & Suboh, 2024). For instance, while preparing the December financial statements, the company such as Urban Outfitters will record the advertisement expenses even if the payment was made in January. Hence, the income statement gives a more accurate picture of the profit-making capacity by including all the revenues and expenses that occurred during the period of the statement.

In this case, the income statement of December would contain such advertising expenses appropriately reflecting the cost incurred to generate the revenue during the festive season. On the other hand, the cash basis of accounting recognizes revenues and expenses only at the time when the cash is exchanged between the two parties (Rangkuti & Suboh, 2024). Consequently, if a company like Urban Outfitters has paid some amount for advertisement in December but has not paid the amount until January, then these costs will not be included in the income statement for December. This results in over-estimated profits because profits always look higher in periods when cash inflows occur but with little or no corresponding expenses. Therefore, the preparation of the financial statements may provide the stakeholders with the wrong impression of the company’s performance.

• Slide 12:

The accrual accounting method gives a clearer and more realistic picture of the financial situation of a company. Including accounts receivables and accounts payables helps to explain the expected cash flows in the future (Rangkuti & Suboh, 2024). For instance, if Urban Outfitters has $100,000 in unpaid advertising expenses at the end of the year, this figure would be included in the balance sheet as a liability indicating that the company has some services received but has not paid for them.

MBA FPX 5010 Assessment 1 Training Accounting Tools and Practices

On the other hand, cash-based accounting provides the general picture of the financial position of the company while ignoring the fact that when the money is to be paid or received (Rangkuti & Suboh, 2024). Consequently, the balance sheet may give a distorted picture of the company’s assets because bills not paid are not treated as liabilities. This may create confusion for the stakeholders as to the actual position of a company in terms of financial obligations and financial commitments.

• Slide 13:

Accrual basis accounting delivers an in-depth perspective on cash management by categorizing cash flows into three distinct areas: activities which include operation, investment, and financial activities. This methodology reflects the company’s actual cash flow situation irrespective of the accruals made on the revenue or expenses. Such transparency is important, especially for those who are assessing the financial position of Urban Outfitters (Rangkuti & Suboh, 2024).

However, cash-based of accounting shows a clear picture of the flow of cash but it distorts the picture. It only considers cash basis and thus causes a lot of variability in the cash flow statement because cash inflows may not necessarily be in proportion with the revenue earned within a certain period.

• Slide 14:

Preference for Capitalizing vs. Expensing Costs

I have an inclination towards the accrual basis of accounting especially capitalizing some costs and expensing others. This preference is founded on several issues. First of all, accrual accounting improves decision-making since it enables the management and the stakeholders to get a better picture of the financial position of the company.

This is important for preparing a balanced budget, investment, and overall strategic planning. Furthermore, through charging operational costs inclusive of advertisement and the cost of opening other stores in the profit and loss statement, Urban Outfitters guarantees that the stakeholders get the right perception of operational efficiency for every period. This increases transparency which is very important, especially to investors, creditors, and other users of financial statements to evaluate performance and risks.

Conclusion

• Slide 15:

Urban Outfitters has recognized expenses for advertising, store opening, and website development that have an impact on net income and asset value. This method as described in the notes to financial statements, states and explains accounting policies, places financial information in perspective, and reports on future obligations.

The application of the accrual basis of accounting enables the provision of a clear picture of the business’s operational performance and the flow of cash. It also gives important information to the stakeholders who use it in decision making and it assists the company in strategic planning as well as in evaluating its financial health. This approach ensures that revenues and expenses are matched in the period they occur, providing a more accurate financial representation.

References

Herr, S. B., Lorson, P., & Pilhofer, J. (2022). Alternative performance measures: a structured literature review of research in academic and professional journals. Schmalenbach Journal of Business Research, 74(3), 389–451.

https://doi.org/10.1007/s41471-022-00138-8

Malau, A., Teguh, M., & Muda, I. (2022). The accrual basis of accounting and the reasons for adjusting entries. Journal of Positive School Psychology, 6(3), 2401–2404.

https://www.journalppw.com/index.php/jpsp/article/view/1970/1152

Oliveira, M. G. de, Azevedo, G., & Oliveira, J. (2021). The relationship between the company’s value and the tone of the risk-related narratives: The case of Portugal. Economies, 9(2), 70.

https://doi.org/10.3390/economies9020070

Partini, S., & Perdana, D. N. C. (2022). Implementation of accrual-based accounting at PMI City of Surakarta. International Journal of Sociology, 109–122.

https://www.seocologi.com/index.php/seocology/article/view/68

Rangkuti, L. E., & Suboh, A. S. (2024). Comparative analysis of accrual and cash accounting methods in financial reporting. East Asian Journal of Multidisciplinary Research, 3(6), 2167–2180.

https://doi.org/10.55927/eajmr.v3i6.9953

Rep, A. (2021). Notes to the financial statements: Current state and improvement. Business Systems Research: International Journal of the Society for Advancing Innovation and Research in Economy, 12(2), 60–78.

https://hrcak.srce.hr/ojs/index.php/bsr/article/view/15539

Urban Outfitters. (n.d.). About Us. Retrieved October 12, 2024, from

https://www.urbn.com/our-brands/urban-outfitters/about-us

U.S. Securities and Exchange Commission. (n.d.). Urban Outfitters Inc—Form 10-K. Retrieved October 2, 2024, from

https://www.sec.gov/Archives/edgar/data/912615/000119312516525832/d118719d10k.htm