Assignment 1 revised - Training—Accounting Tools and Practices PDF

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Training—Accounting Tools and Practices...

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JoVanna Simmons Capella University MBA5010 Accounting Methods for Leaders Urban Outfitters Training Manual November 13, 2020

Training Manual for Urban Outfitters History of Urban Outfitters Urban Outfitters is a lifestyle retailer that provide our customers with unique clothing and accessories. Urban Outfitters opened their first location in 1970 by three founders; Dick Hayne, Scott Blaire, Judy Wicks. They opened the first location near the University of Pennsylvania. The very first mission was “provide second-hand clothing, furniture, jewelry and home décor for college-aged customers in a casual fun environment”. Now with over 200 locations that is operating, our company has branched outside of the US including Europe and Canada that are all very successful. Our brand sells a variety of men and women clothing from a selection of boho dresses, graphics, shoes, cosmetics and intimates. Not only do Urban Outfitters sell clothing and clothing accessories, we have expanded to providing our customers with home and bedding apparel. Financial Statements and Notes Financial Statements are the written form of “money” for a business. They are basically the visual representation of numbers on top of numbers. Famous words of Jerry Maguire, “Show me the money!” Simply, financial statements are the evidence of the numerous transactions of a company. All that is included in a financial statement will identify where money was spent, where it originally came from and where it is currently located. Notes within a financial statement is very important. They may also be referred as footnotes. The main focal point of notes is to provide efficient information that is of a company's operations; and will also give insight on the financial position of the company as a part of the financial statements. Followed by the financial statements, notes must be visible, as they are

required by the full disclosure principle. Notes are also important to declutter the many words and numbers that is provided within the financial statements. This is why they are separated and could give a thorough understanding by being able to explain what the financial statement is really about. Notes are usually near the bottom of the pages underneath the actual financial stamen image/chart. Financial statements should be broken down and easy to read. it should be free of misconceptions and should be self-explanatory. Although financial statements do not reveal everything, your professional accountant can bring additional information to the forefront of the business owner to mitigate the missing information and to assist in interpreting the data” (Myers, 2018). It is key to use your resources to keep the business afloat and to be able t read them for yourself. Analyzing Notes of the Financial Statements of Urban Outfitters Urban Outfitters operations are within two reportable segments; the retail segment and the wholesale segment. “The retail segment consists of Anthropologie, Bhldn, Free People, Terrain and Urban Outfitters brands and our Food and Beverage division” (sec.gov). The retail segment consumer products and services are sold directly to our customers through our stores, websites, mobile applications, catalogs and customer contact centers. “The wholesale segment consists of the Free People wholesale division that primarily designs, develops and markets young women’s contemporary casual apparel and shoes sold through specialty and department stores and third-party websites” (sec.gov). While using the link that will be provided with this manual, there will be access to the Annual Report on Form 10-K for Urban Outfitters. This link provides detailed information of where money and inventory is located at all times. Income statements data will give insight of net sales, gross income, income from operations, net income,

net income per common share (diluted), net income per common share (basic) and weighted average common shares outstanding (diluted). It will also provide a breakdown of balance sheets; which provides data on working capital, total assets, total liabilities and total shareholders’ equity. Results of total operations will provide insight on how well the company has been during a fiscal year. All flaws and successes are shown which is proven to give feedback as to what the following year could continue to do or what can be changed to better the company. How GAAP affect Financial Statements GAAP have a few components that have an effect on what is shown on financial statements. A few components that are covered is: cost, debt, revenue profits, investments taxes, revenue, disclosures and profits. An example of so would be, “GAAP requires costs to be measured based on when the expense was made and not adjusted based on inflation levels or other factor” (GAAP, 2016). The main purpose of GAAP when it comes to financial statements is to ensure that companies use a uniform set of standards to compile the statements. Advertising Cost Advertising serves a critical purpose by enabling sellers to effectively compete with each other for the attention of buyers” (Hamlett, 2019). Advertising also helps to raise awareness and attract interest to target demographics’ awareness of issues. Having a good advertising strategy is a golden key to a company’s success. Especially for our company, Urban Outfitters. Urban Outfitters is a lifestyle retailer that provide our customers with unique clothing and accessories. Advertising can be explored by displaying the company’s purpose through social media such as Twitter, Facebook, Vlogs/Blogs, Instagram and TikTok. Social media has

been a great way to show customers and possible customers why a company is resourceful to them. Advertising expenses is the amount of money a company uses to promote its brand, image and products. It is very important that all advertising costs are be reported as advertising expense at the time the ads are run, in fact this is a factor that cannot be excluded.

Advertising expense is the income statement account that identifies the dollar amount of ads that were ran during a period of time, such as monthly. Advertising expenses were $127,159, $114,104 and $103,882 for fiscal year 2017, 2016 and 2015. Urban Outfitters also incurred web creative expenses of $31,237, $32,003 and $27,183 for fiscal 2017, 2016 and 2015. Advertising expenses and web creative expenses are both included in “Selling, general and administrative expenses” in the Consolidated Statements of Income on the financial statements. The provided information of advertising is collected from the financial statement notes of Urban Outfitters. Expenses and Capitalizing There is not an objective distinction between expensed costs and capitalized costs; each company determines for itself which costs should be capitalized vs. expensed (within GAAP guidelines) GAAP, also known as Generally Accepted Accounting Principles are principles/rules that The U.S. Securities and Exchange Commission (SEC) requires that all companies adhere to. There is not clear distinction between expensed cost and capitalized costs, however they do have minor differences. Expensing a cost will be included on the income statement and is subtracted from revenue to determine profit. While “capitalizing a cost is determined to be a capital expenditure and is accounted for on the balance sheet as an asset, with only the depreciation showing up on the income statement” (GAPP, 2016).

Methods of Inventory There are two methods of inventory companies use. The two are FIFO (first in, first out) and LIFO (last in, first out). FIFO is a method where selling the oldest items first and saving the freshest products once the old has been used. By using the FIFO method, “during periods of rising prices, sold inventory is priced lower than the inventory listed under assets on the balance sheet (Barslow, 2016). On the other hand, there is LIFO, which is a concept that uses the most recent purchased items to sold before the older items. While using the LIFO method, it follows the concept of “in cases of rising prices, sold inventory is priced higher than the inventory listed on the balance sheet” (Barslow, 2016). The inventory that is sold is listed on the income statement while the remaining inventory continues to be listed on the balance sheet as an asset. These methods are important when it comes to balance sheets. The method that is used for Urban Outfitters is FIFO; Urban Outfitters focuses on using all inventory that is in stock. Balance sheets provide a visual presentation of asset values. This concludes that all products in inventory is to be considered as an asset until the item is sold. For example; once a Champion sweater is sold from Urban Outfitters, that sweater changes from an asset on the balance sheet to a sold item on the income statement. “The methodology used to value inventory can change the value of assets listed on the balance sheet, which can alter the metrics used in the analysis of balance sheet accounts” (Barslow, 2016).

Conclusion

With this guide, one should be able to understand what is expected of a financial statement, what is included in the notes, inventory methods, the definition of GAAP and how it affects the financial statement and how advertising cost affects business. This guide will also give insight on where to go on the financial statement to find such information. It also explains why FIFO or LIFO is a method that is used by a company and how inventory can go from the balance sheet to the income statement.

Reference: Barstow, S. (2016, October 26). LIFO or FIFO: Which Is Better for Balance Sheet Analysis? Retrieved from https://smallbusiness.chron.com/lifo-fifo-better-balance-sheet-analysis75072.html Dewitt, K. (2018, January 16). Accounting for Startup Costs: How to Track Your Expenses. Retrieved from https://www.patriotsoftware.com/blog/accounting/accounting-for-startup-costsexpenses-examples/ GAAP. (2016, September 23). Retrieved from http://www.business-literacy.com/financialconcepts/gaap/ Hamlett, C. (2019, February 05). Why Is Advertising so Important to Business? Retrieved January, from https://smallbusiness.chron.com/advertising-important-business-3606.html Myers, M. (2018, January 29). 10 things financial statements don't reveal about a business. Retrieved from https://www.bizjournals.com/nashville/news/2018/01/29/10-thingsfinancial-statements-dont-reveal-about-a.html Notes to financial statements definition and meaning: AccountingCoach. (n.d.). Retrieved from https://www.accountingcoach.com/terms/N/notes-to-financial-statements https://www.sec.gov/Archives/edgar/data/912615/000119312517108506/d286750d10k.htm#fin2 86750_7 https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&;CIK=0000912615&type=10k&dateb=&owner=exclude&count=40 https://www.urbn.com/who-we-are/history https://www.urbn.com/who-we-are/history...