Financial accounting reports are prepared for the use of external parties such as shareholders and creditors, whereas managerial accounting reports are prepared for managers inside the organization.
This contrast in basic orientation results in a number of major differences between financial and managerial accounting, even though both financial and managerial accounting often rely on the same underlying financial data. In addition to the to the differences in who the reports are prepared for, financial and managerial accounting also differ in their emphasis between the past and the future, in the type of data provided to users, and in several other ways. These differences are discussed in the following paragraphs.
Emphasis on the Future:
Since planning is such an important part of the manager's job, managerial accounting has a strong future orientation. In contrast, financial accounting primarily provides summaries of past financial transactions. These summaries may be useful in planning, but only to a point. The future is not simply a reflection of what has happened in the past. Changes are constantly taking place in economic conditions, and so on. All of these changes demand that the manager's planning be based in large part on estimates of what will happen rather than on summaries of what has already happened.
Relevance of Data:
Financial accounting data are expected to be objective and verifiable. However, for internal use the manager wants information that is relevant even if it is not completely objective or verifiable. By relevant, we mean appropriate for the problem at hand. For example, it is difficult to verify estimated sales volumes for a proposed new store at good Vibrations, Inc., but this is exactly the type of information that is most useful to managers in their decision making. The managerial accounting information system should be flexible enough to provide whatever data are relevant for a particular decision.
Less Emphasis on Precision:
Timeliness is often more important than precision to managers. If a decision must be made, a manager would rather have a good estimate now than wait a week for a more precise answer. A decision involving tens of millions of dollars does not have to be based on estimates that are precise down to the penny, or even to the dollar. In fact, one authoritative source recommends that, "as a general rule, no one needs more than three significant digits., this means, for example, that if a company's sales are in the hundreds of millions of dollars, than nothing on an income statement needs to be more accurate than the nearest million dollars. Estimates that accurate to the nearest million dollars may be precise enough to make a good decision. Since precision is costly in terms of both time and resources, managerial accounting places less emphasis on precision than does financial accounting. In addition, managerial accounting places considerable weight on non monitory data, for example, information about customer satisfaction is tremendous importance even though it would be difficult to express such data in monitory form.
Segments of an Organization:
Financial accounting is primarily concerned with reporting for the company as a whole. By contrast, managerial accounting forces much more on the parts, or segments, of a company. These segments may be product lines, sales territories divisions, departments, or any other categorizations of the company's activities that management finds useful. Financial accounting does require breakdowns of revenues and cost by major segments in external reports, but this is secondary emphasis. In managerial accounting segment reporting is the primary emphasis.
Generally Accepted Accounting Principles (GAAP):
Financial accounting statements prepared for external users must be prepared in accordance with generally accepted accounting principles (GAAP). External users must have some assurance that the reports have been prepared in accordance with some common set of ground rules. These common ground rules enhance comparability and help reduce fraud and misrepresentations, but they do not necessarily lead to the type of reports that would be most useful in internal decision making. For example, GAAP requires that land be stated at its historical cost on financial reports. However if, management is considering moving a store to a new location and then selling the land the store currently sits on, management would like to know the current market value of the land, a vital piece of information that is ignored under generally accepted accounting principles (GAAP).
Managerial AccountingNot Mandatory:
Financial accounting is mandatory; that is, it must be done. Various out side parties such as Securities and exchange commission (SEC) and the tax authorities require periodic financial statements. Managerial accounting, on the other hand, is not mandatory. A company is completely free to do as much or as little as it wishes . No regularity bodies or other outside agencies specify what is to be done, for that matter, weather anything is to be done at all. Since managerial accounting is completely optional, the important question is always, "Is the information useful?" rather than, "Is the information required?"
Thursday, May 27, 2010
History of Managerial Accounting
Managerial accounting has its roots in the industrial revolution of the 19th century. During this early period, most firms were tightly controlled by a few owner-managers who borrowed based on personal relationships and their personal assets.
ince there were no external shareholders and little unsecured debt, there was little need for elaborate financial reports. In contrast, managerial accounting was relatively sophisticated and provided the essential information needed to manage the early large scale production of textile, steel, and other products. After the turn of the century, financial accounting requirements burgeoned because of new pressures placed on companies by capital markets, creditors, regulatory bodies, and federal taxation of income. Johnson and Kaplan state that "many firms needed to raise funds from increasingly widespread and detached suppliers of capital. To tap these vast reservoirs of outside capital, firms' managers had to supply audited financial reports. And because outside suppliers of capital relied on audited financial statements, independent accountants had a keen interest in establishing well defined procedures for corporate financial reporting. The inventory costing procedure adopted by public accountants after the turn of the century had a profound effect on management accounting. As a consequence, for many decades, management accountants increasingly focused their efforts on ensuring that financial accounting requirements were met and financial reports were released on time. The practice of management accounting stagnated. In the early part of the century, as product line expanded operations became more complex, forward looking companies saw a renewed need for management-oriented reports that was separate from financial reports. But in most companies, management accounting practices up through the mid-1980s were largely indistinguishable from practices that were common prior to world war I. In recent years, however, new economic forces have led to many important innovations in management accounting. These new practices are discussed in other chapters.
ince there were no external shareholders and little unsecured debt, there was little need for elaborate financial reports. In contrast, managerial accounting was relatively sophisticated and provided the essential information needed to manage the early large scale production of textile, steel, and other products. After the turn of the century, financial accounting requirements burgeoned because of new pressures placed on companies by capital markets, creditors, regulatory bodies, and federal taxation of income. Johnson and Kaplan state that "many firms needed to raise funds from increasingly widespread and detached suppliers of capital. To tap these vast reservoirs of outside capital, firms' managers had to supply audited financial reports. And because outside suppliers of capital relied on audited financial statements, independent accountants had a keen interest in establishing well defined procedures for corporate financial reporting. The inventory costing procedure adopted by public accountants after the turn of the century had a profound effect on management accounting. As a consequence, for many decades, management accountants increasingly focused their efforts on ensuring that financial accounting requirements were met and financial reports were released on time. The practice of management accounting stagnated. In the early part of the century, as product line expanded operations became more complex, forward looking companies saw a renewed need for management-oriented reports that was separate from financial reports. But in most companies, management accounting practices up through the mid-1980s were largely indistinguishable from practices that were common prior to world war I. In recent years, however, new economic forces have led to many important innovations in management accounting. These new practices are discussed in other chapters.
Need for Managerial Accounting Information
Need for Managerial Accounting Information
Every organization-large and small-has managers. Someone must be responsible for making plans, organizing resources, directing personnel, and controlling operations. Every where mangers carry out three major activities-planning, directing and motivating, and controlling.
Planning:
Planning involves selecting a course of action and specifying how the action will be implemented. The first step in planning is to identify the alternatives and then to select from among the alternatives the one that does the best job of furthering the organization's objectives. While making choices management must balance the opportunity against the demands made on the companies resources.
The plans of management are often expressed formally in budgets, and the term budgeting is applied to generally describe the planning process. Budgets are usually prepared under the direction of controller, who is the manager in charge of the accounting department. Typically, budgets are prepared annually and represent management's plans in specific, quantitative terms.
Directing and Motivating:
In addition to planning for the future, managers must oversee day-to-day activities and keep the organization functioning smoothly. This requires the ability to motivate and affectively direct people. Managers assign tasks to employees, arbitrate disputes, answer questions, solve on-the-spot problems, and make many small decisions that affect customers and employees. In effect, directing is that part of the manager's work that deals with the routine and the here and now. Managerial accounting data, such as daily sales reports are often used in this type of day-to-day decision making.
Controlling:
In carrying out the control function, managers seek to ensure that the plan is being followed. Feedback, which signals operations are on track, is the key to effective control. In sophisticated organizations, this feedback is provided by detailed reports of various types. One of these reports, which compares budgeted to actual results, is called a performance report. Performance report suggest where operations are not proceeding as planned and where some parts of the organization may require additional attention.
The Planning and Control Cycle:
The work of management can be summarized in a model. The model, which depicts the planning and control cycle, illustrates the smooth flow of management activities from planning through directing and motivating, controlling, and then back to planning again. all of these activities involve decision making. So it is depicted as the hub around which the activities revolve.
Every organization-large and small-has managers. Someone must be responsible for making plans, organizing resources, directing personnel, and controlling operations. Every where mangers carry out three major activities-planning, directing and motivating, and controlling.
Planning:
Planning involves selecting a course of action and specifying how the action will be implemented. The first step in planning is to identify the alternatives and then to select from among the alternatives the one that does the best job of furthering the organization's objectives. While making choices management must balance the opportunity against the demands made on the companies resources.
The plans of management are often expressed formally in budgets, and the term budgeting is applied to generally describe the planning process. Budgets are usually prepared under the direction of controller, who is the manager in charge of the accounting department. Typically, budgets are prepared annually and represent management's plans in specific, quantitative terms.
Directing and Motivating:
In addition to planning for the future, managers must oversee day-to-day activities and keep the organization functioning smoothly. This requires the ability to motivate and affectively direct people. Managers assign tasks to employees, arbitrate disputes, answer questions, solve on-the-spot problems, and make many small decisions that affect customers and employees. In effect, directing is that part of the manager's work that deals with the routine and the here and now. Managerial accounting data, such as daily sales reports are often used in this type of day-to-day decision making.
Controlling:
In carrying out the control function, managers seek to ensure that the plan is being followed. Feedback, which signals operations are on track, is the key to effective control. In sophisticated organizations, this feedback is provided by detailed reports of various types. One of these reports, which compares budgeted to actual results, is called a performance report. Performance report suggest where operations are not proceeding as planned and where some parts of the organization may require additional attention.
The Planning and Control Cycle:
The work of management can be summarized in a model. The model, which depicts the planning and control cycle, illustrates the smooth flow of management activities from planning through directing and motivating, controlling, and then back to planning again. all of these activities involve decision making. So it is depicted as the hub around which the activities revolve.
Accounting For Management
Introduction to Managerial Accounting (Cost or Management Accounting)
What is Managerial Accounting (Management Accounting / Cost Accounting)?
Managerial accounting is concerned with providing information to managers-that is, people inside an organization who direct and control its operation. In contrast, financial accounting is concerned with providing information to stockholders, creditors, and others who are outside an organization.
Managerial accounting provides the essential data with which the organizations are actually run. Managerial accounting is also termed as management accounting or cost accounting. Financial accounting provides the scorecard by which a company's overall past performance is judged by outsiders. Managerial accountants prepare a variety of reports. Some reports focus on how well managers or business units have performed-comparing actual results to plans and to benchmarks. Some reports provide timely, frequent updates on key indicators such as orders received, order backlog, capacity utilization, and sales. Other analytical reports are prepared as needed to investigate specific problems such as a decline in the profitability of a product line. And yet other reports analyze a developing business situation or opportunity. In contrast, financial accounting is oriented toward producing a limited set of specific prescribed annual and quarterly financial statements in accordance with Generally Accepted Accounting Principles (GAAP). (Ray H. Garrison, Eric W. Noreen 1999).
►
Financial accounting vs. Managerial accounting:
Managerial accounting differs from financial accounting in a number of ways that are briefly discussed below. Click here for a detailed study of the difference between financial and managerial accounting.
What is Managerial Accounting (Management Accounting / Cost Accounting)?
Managerial accounting is concerned with providing information to managers-that is, people inside an organization who direct and control its operation. In contrast, financial accounting is concerned with providing information to stockholders, creditors, and others who are outside an organization.
Managerial accounting provides the essential data with which the organizations are actually run. Managerial accounting is also termed as management accounting or cost accounting. Financial accounting provides the scorecard by which a company's overall past performance is judged by outsiders. Managerial accountants prepare a variety of reports. Some reports focus on how well managers or business units have performed-comparing actual results to plans and to benchmarks. Some reports provide timely, frequent updates on key indicators such as orders received, order backlog, capacity utilization, and sales. Other analytical reports are prepared as needed to investigate specific problems such as a decline in the profitability of a product line. And yet other reports analyze a developing business situation or opportunity. In contrast, financial accounting is oriented toward producing a limited set of specific prescribed annual and quarterly financial statements in accordance with Generally Accepted Accounting Principles (GAAP). (Ray H. Garrison, Eric W. Noreen 1999).
►
Financial accounting vs. Managerial accounting:
Managerial accounting differs from financial accounting in a number of ways that are briefly discussed below. Click here for a detailed study of the difference between financial and managerial accounting.
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Deferred Revenue Accounting
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E 23 DETC OCCASIONAL PAPER
Deferred
Revenue
Accounting
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
DETC OCCASIONAL PAPER
NUMBER 23
Deferred Revenue Accounting
by
Mr. Walter Miller, CPA, Director of Finance, College of the
Humanities and Sciences Harrison Middleton University
Published by the Distance Education and Training Council
1601 18th Street, NW, Washington, D.C.20009
202-234-5100; fax: 202-332-1386; www.detc.org
July 2005
DETC OCCASIONAL PAPERS are essays intended to stimulate and encourage
candid exchanges of ideas between distance study professionals. For a complete set
of Occasional Papers, write or call the DETC.
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
1
Introduction
The Accreditation Standards of the DETC require that an institution be
financially able to deliver high quality instruction and educational
services.1 When evaluating this standard, the Accrediting Commission
uses comparative financial statements from the institution prepared
using the accrual method of accounting in conformity with generally
accepted accounting principles. One specific area evaluated in the Self-
Evaluation Report (SER) is the reserves kept for honoring future service
obligations, bad debts, and refunds.2
Reserves
When dealing with reserves, financial statements presented according to
generally accepted accounting principles (GAAP), and demonstrated
operations, you encounter several elements that need to be addressed.
These elements have a financial statement impact and, for those schools
which are for-profit, an income tax impact. These elements are:
• Reserve for bad debts – this is an estimated amount of the school’s
accounts receivable (usually tuition) that will not be received in the
future.
• Actual bad debts – these are the actual accounts receivable that the
school has determined will not be paid and have no further remedies
that will or can be pursued for collection.
• Reserve for unearned income – this represents the amount of tuition
the student has paid or signed a contract for which the school has
not earned the right to keep.
• Refund reserve – this represents the obligation the school has to
repay money received from a student calculated on the DETC
minimum standards.
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
2
• Reserve for future services – this represents an estimate of the cost
to provide services the school is contractually obligated to perform
based on tuition that has been received and is not subject to refund.
• Accrual of tuition income – this represents services that have been
provided to students but have not been paid by the students.
• Accrual of expenses – this represents expenses that have been
incurred for services to students where the expenses have not been
paid.
In order to demonstrate that it has a sound and financially responsible
operation, an institution accredited by the DETC must adequately
address each of the items above.
Reserve Treatment
A typical accounting transaction for tuition could follow two basic
paths:
1. A student enrolls and pays the full tuition in full (“up front”) for the
course or program.
2. A student enrolls and enters into a contractual agreement to pay the
tuition over a period of time, usually several months. There is
usually a down payment required and interest is charged on the
outstanding balance owed.
The accounting treatment for the first pattern would be to record the
receipt of cash as an asset and the balancing entry would be to “reserve
for unearned income,” a liability account. As lessons/courses are
submitted for school servicing, income from services would be recorded
by reducing the reserve for unearned income and increasing income.
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
3
When the entire course has been completed, i.e., when the last required
assignment has been submitted to the school by the student, all the
tuition would be included in income and the associated liability would
be zero. Using this method would provide an adequate reserve/liability
for refunds required under the DETC Accreditation Standards, and no
reserve for future services would be required.
Balance Sheet: An Illustration
Assets
Cash $1,000
Liabilities
Reserve for unearned income $1,000
First lesson completed -100
All lessons completed -900
0
Income Statement
Tuition income First lesson completed 100
Tuition income All lessons completed 900
1,000
The reserve for unearned revenue may also be eliminated by the
expiration of the contract. The use of a fixed contractual term for each
student enrollment is allowed by DETC standards. This contractual
term must be of sufficient duration to allow a typical student to
complete the course/program within that period. Institutions should be
able to prove that a clear majority of students complete the course/
program well within any term period. The expiration of the contract
term would allow the school to include in income all tuition that had
been received and eliminate any related reserve for unearned income on
that contract. As the expiration of the contract terminates the obligation
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
4
for future services to the student, no liability would need to be recorder
for future services.
Under the second pattern, the school would record the down payment as
an increase in the asset – cash, the tuition receivable as an asset (if the
period the receivable is payable over more than twelve months, it would
be split between a current and a long term asset), and an off-setting
liability – reserve for unearned income. The income recognition would
follow the first pattern with a supplemental evaluation of the
collectibility of the tuition receivable.
The collectibiltiy of receivables must be reviewed periodically. This
evaluation would result in the establishment of a reserve for bad debts.
The offset to the reserve for bad debts is a bad debt expense on the
income statement. This reserve can be established based on historical
analysis of collectibility of accounts and/or actual analysis of the
existing receivables. As any tuition receivable is deemed to be
uncollectable, the amount should be written off. To write off tuition
receivables, the school would reduce the accounts receivable asset and
reduce the allowance for bad debts. This may also require an adjustment
to the reserve for unearned income. If the income related to the
receivable had not been included in income, then the offset to the
receivable would involve the reduction of the reserve for unearned
income.
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
5
Balance Sheet
Assets
Cash $100
Payment on accounts receivable 100
Payment on accounts receivable 500
$700
Accounts receivable 900
Payment on accounts receivable -100
Payment on accounts receivable -500
$300
Reserve for bad debts -300
Liabilities
Reserve for unearned income 1,000
First lesson completed -100
All lessons completed -900
0
Income Statement
Tuition income First lesson completed 100
Tuition income All lessons completed 900
1,000
Bad debts -300
Net income $700
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
6
Alternative Reserve Treatment
Some schools may record the entire tuition as income when received or
when a contract is signed. Schools using this approach would be
required to establish reserves for refunds and reserves for future service
obligations. The reserve for refunds should be calculated based on the
DETC minimum tuition refund policies for all existing students. This
requires an analysis of the number of courses/lessons completed to
determine the school’s financial obligation to the students. When the
refund reserve is established, income would be reduced by the same
amount.
Even though the school does not have an obligation to refund tuition, it
may have an obligation to provide services to the student. This
obligation—reserve for future services—should reflect the anticipated
cost to provide the educational elements to the student. This reserve
creates a liability on the balance sheet and an expense on the income
statement.
If the school uses a reasonably and justifiable fixed contract term, both
of the above reserves would be reduced to zero at the end of the term
contract period.
Use of the alternative reserve method should be done with caution, as a
standard accounting principle is to match income and expense to the
period in which the income is earned. If a school’s contractual
obligation with a student is greater than twelve months, the alternative
method could overstate current period income. For example, a student
enrolls in a four year bachelors degree program for $20,000. The
student completes half of the program by the end of year two, and
pursuant to DETC guidelines, is no longer entitled to a refund. The
school would take $10,000 into income in that year (the amount that
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
7
was previously treated as a refund reserve), and set up a reserve for
future services to offset that income. This net of the two items would be
the net income for that student’s remaining involvement with the
school. Then, for the next two years allotted to the provisions of
services, the school would show no income or expense. For illustration,
assume the amount for future services is $5,000 and there are 100
students in that situation. The school in year two would include
$500,000 ($10,000 – 5,000 = $5,000; $5,000 * 100 = $500,000) in net
income for year two and nothing in years three and four.
In today’s tumultuous accounting environment, schools should use
conservative accounting practices in dealing with income recognition
and reserves.
Income Tax Issues
Unfortunately for for-profit schools, the tax treatment of income and
reserves is significantly different than the financial statement treatment.
The Internal Revenue Code requires the inclusion in income of any cash
received that does not have a contractual obligation to be repaid. The
Code also does not allow the deduction of reserves from income. It only
allows the deduction of actual incurred expenses. In the example at the
end of the last section, the tax result would be taxable income of
$1,000,000 ($10,000 per student no longer required to be repaid times
100 students).
Summary
DETC’s continued stature as a “nationally recognized” accrediting
association hinges on its accredited institutions maintaining a high level
of financial responsibility, and running a sound and ethical operation.
The proper and conservative handling of reserves has a significant
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
8
impact on demonstrating the school’s ability to be financially able to
deliver high quality instruction and educational services.
Notes
Accounting standards and the tax laws are constantly changing. The
information included in this DETC Occasional Paper is for general
guidance only, and is based on DETC standards, accounting standards,
and tax laws in effect on May 31, 2005. Each institution should consult
its own qualified legal, accounting, and tax professionals for guidance
in their unique situations.
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
9
Appendix 1
Footnote 1: (Accreditation Standard X)
X. FINANCIAL RESPONSIBILITY (The institution is financially able
to deliver high quality instruction and educational services.)
A. Financial Practices
The institution shows, by complete, comparative financial statements
covering its two most recent fiscal years, that it is financially responsible
and that it can meet its financial obligations to provide instruction and
service to its students. (Financial statements must be prepared “in
conformity with generally accepted accounting principles.”)
B. Demonstrated Operation
In all respects, all institutions must document continuous sound and ethical
operations. Applicant institutions must document two* continuous years of
sound and ethical operation as a bona fide electronically-delivered, online
or other delivery method of distance study (*one year if the parent
company is accredited by another accrediting agency that is recognized by
either the U.S. Department of Education or the Council for Higher
Education Accreditation). This documentation shall show that the name
being used by the school is free from any association with activity that
could damage the standing of the accrediting process, such as illegal
actions, unethical conduct, or abuse of consumers.
Footnote 2:
IX.A. 6. Describe what reserves are kept for honoring future service
obligations, bad debts, and refunds.
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
10
Appendix 2
Under DETC’s D.1. - Examiner’s Rating Form for All Institutions, under Standard
IX. Financial Responsibilities, you should be able to answer “Yes” to the following
questions.
IX. A. Financial Practices
1. Do the institution’s financial statements demonstrate overall financial
responsibility or does the parent company guarantee financial stability?
a. Are the financial statements complete?
b. Are all notes and supplementary schedules to statements included?
c. Do the statements include an income statement, balance sheet, statement
of cash flows, and explanatory notes?
d. Did the institution provide detailed operating statements for institution
divisions?
e. Are the statements prepared using the accrual method of accounting?
2. Did the institution submit a properly executed copy of the appropriate Teach-
Out Commitment form?
3. Does the institution use an adequate budget-making process?
4. Are current assets sufficient to meet current liabilities?
5. Did the institution answer “No” to the question, “Has the institution ever
entered into bankruptcy?”
6. Are the reserves for honoring future obligations, bad debts accurate, and
refunds adequate?
7. Do the accounts payable (numbers, amounts, and age) reflect sound financial
responsibility and management?
8. Are inventories of course materials adequate for current and future servicing
requirements?
9. Does the institution have adequate insurance coverage, and is it properly
allocated?
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
11
10.For an institution with resident training program(s), is there adequate liability
coverage for students at resident training sites?
IX. B. Demonstrated Operation
1. Has the institution documented at least two continuous years* of experience as
a distance education institution (with the period starting with the date of the
first enrollment)? (*one year if the institution or its parent is accredited by
another recognized accrediting agency.)
2. Has the institution (or parent company) demonstrated sound financial
responsibility and ethical operation for the preceding two years?
3. Has the institution presented the proper documentation proving it is approved
or licensed as appropriate?
4. Has the institution documented that the name being used by the institution is
free from any association with activity that could damage the standing of the
accrediting process?
5. Does the institution offer instruction that is predominately at a distance?
6. Degree Program(s): Can the institution document that it has a completely
developed curriculum with at least one academic degree program in which
students have been enrolled for a minimum of two years (one year if parent
company is accredited by another recognized accrediting agency)?
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
12
Appendix 3
H.2. Policy on Commission-Requested Financial Statements
When the Accrediting Commission requests a financial statement from an
accredited or applicant institution, the financial statement must be prepared “in
conformity with generally accepted accounting principles,” often referred to as
“GAAP.” This includes the use of accrual method of accounting. The Commission
has the option of requesting one of these two types of financial statements:
1. An audited financial statement certified by an outside, independent, certified
public accountant in accordance with standards established by the American
Institute of Certified Public Accountants.
2. A reviewed financial statement. A “reviewed financial statement” consists of
inquiries of institution management by an outside, independent, certified
public accountant and includes analytical procedures applied to financial data.
It is less in scope than an audited statement and does not have an “opinion”
regarding the financial statements. The accountant must, however, state that he
or she is not aware of any material modifications that would need to be made
to the statements in order for them to be in conformity with standards
established by the American Institute of Certified Public Accountants.
All financial statements should cover the activities of the legal entity that has the
responsibility for operating the accredited distance education institution.
Minimum Acceptable Financial Statements
At a minimum, the financial statements (audited or reviewed) must be comprised
of:
A. A Comparative Statement, which displays the most recent two fiscal years of
financial data, preferably in side-by-side columns.
B. Balance Sheet, reflecting assets, liabilities, equity, and retained earnings;
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
13
December 30, 2005
Mr. Michael P. Lambert, Executive Director
Distance Education and Training Council
1601 18th Street, NW
Washington, DC 20009
Dear Mr. Lambert:
As a certifying officer, I acknowledge my responsibilities for establishing and
maintaining controls and procedures that ensure that I am aware of material
information relating to [name of institution]. The attached report discloses (a) all
material weaknesses in internal controls that came to the attention of certifying
officers, (b) any fraud involving management or employees with significant
responsibilities, and (c) any significant changes in internal controls, including
actions to correct material weaknesses, during the period covered by this report.
C. Income Statement, reflecting revenues, expenses, and profits and losses;
D. Statement of Cash Flows, reflecting the sources and uses of working capital;
and
E. Explanatory Notes, which reflect all of the disclosures or footnotes required
by generally accepted accounting principles.
These statements must be as of the date of the institution’s most recently ended
fiscal year or a date otherwise specified by the Accrediting Commission.
Letter of Financial Statement Validation
This letter must accompany an institution’s financial statements when submitted as
an exhibit with a Self-Evaluation Report, or anytime when the Accrediting
Commission calls for a financial statement from an institution, or when an
institution’s Annual Report submission requires a financial statement (e.g., when
there’s a loss is reported).
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
14
I have reviewed this report. Based on my knowledge:
(1) This report contains all the facts needed to prevent it from being misleading
and it contains no untrue statements;
(2) Financial statements and other information fairly present the financial
condition, results of operations and cash flow.
Certified by:
Chief Executive Officer: _____________________________________
Chief Financial
Officer:________________________________________
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
Other Occasional Papers Available
Number 1—Student Services: Achilles Heel or Crown Jewel? by
Michael P. Lambert, Executive Director, DETC
Number 2—What Manager Doesn’t Study at Home? by Dr. Gordon
Wills, Principal, The International Management Centres
Number 3—Toward Better Service and Testing by Dennis Foltz,
Vice President of Education and Operations, Gemological Institute
of America
Number 4—Testing Home Study Advertising by Jack Thompson,
Consultant
Number 5—Conducting Graduate Surveys by Mary McKeown,
Vice President, American School
Number 6—Enrollment Contracts for Home Study Schools by
William Wright, American School
Number 7—Evaluating Your School’s Worth by Michael P. Lambert,
Executive Director, DETC
Number 8—Getting the Most PR for Your School by Sally R.
Welch, Assistant Director, DETC
Number 9—The Effectiveness of the Home Study Method edited by
Sally R. Welch, Assistant Director, DETC
15
DETCOCCASIONALPAPERTWENTYTHREE
16
Number 10—Home Study Academic Transcripts by Sally R.
Welch, Assistant Director, DETC
Number 11—Admissions Policies: The Key to Success by
Josephine L. Ferguson, Member, DETC Accrediting Commission
Number 12—How to Write an Analytical Self-Evaluation Report
by Josephine L. Ferguson, Member, Accrediting Commission of
the DETC
Number 13—Building a Distance Education Faculty by Dr. John
E. Jessup, Academic Dean, American Military University
Number 14—Embracing the Internet by Carol Oliver and Dr.
Gordon Wills, International Management Centres
Number 15—Strategies for Helping Students Transfer Credits by
Ali Fares, Cleveland Institute of Electronics
Number 16—How to Develop a Plan of Succession by Robert
McKim Norris, Jr., Andrew Jackson University
Number 17—How to Assess Experiential Learning by Lisa J.
Davis, California College for Health Sciences
Number 18—Managing Education Programs in the Information
Age by Tina J. Parscal, ISIM University
Number 19—Converting Courses to Online by Dr. Judith M.
Smith, SiteTrainer.com.
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
Number 20—Confessions of an Early Internet Educator by Jack
R. Goetz, Concord University School of Law
Number 21—Global Activities of DETC Institutions by Irving H.
Buchen, IMPAC University
Number 22—International Academic Equivalence: A Primer by
Irving H. Buchen, IMPAC University and David John Le Cornu,
St. Clements University
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
1601 18TH STREET, N.W.
WASHINGTON, D.C. 20009-2529
(202) 234-5100
http://www.detc.org
E-Mail: detc@detc.org
DISTANCE EDUCATION AND TRAINING COUNCIL
Deferred
Revenue
Accounting
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
DETC OCCASIONAL PAPER
NUMBER 23
Deferred Revenue Accounting
by
Mr. Walter Miller, CPA, Director of Finance, College of the
Humanities and Sciences Harrison Middleton University
Published by the Distance Education and Training Council
1601 18th Street, NW, Washington, D.C.20009
202-234-5100; fax: 202-332-1386; www.detc.org
July 2005
DETC OCCASIONAL PAPERS are essays intended to stimulate and encourage
candid exchanges of ideas between distance study professionals. For a complete set
of Occasional Papers, write or call the DETC.
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
1
Introduction
The Accreditation Standards of the DETC require that an institution be
financially able to deliver high quality instruction and educational
services.1 When evaluating this standard, the Accrediting Commission
uses comparative financial statements from the institution prepared
using the accrual method of accounting in conformity with generally
accepted accounting principles. One specific area evaluated in the Self-
Evaluation Report (SER) is the reserves kept for honoring future service
obligations, bad debts, and refunds.2
Reserves
When dealing with reserves, financial statements presented according to
generally accepted accounting principles (GAAP), and demonstrated
operations, you encounter several elements that need to be addressed.
These elements have a financial statement impact and, for those schools
which are for-profit, an income tax impact. These elements are:
• Reserve for bad debts – this is an estimated amount of the school’s
accounts receivable (usually tuition) that will not be received in the
future.
• Actual bad debts – these are the actual accounts receivable that the
school has determined will not be paid and have no further remedies
that will or can be pursued for collection.
• Reserve for unearned income – this represents the amount of tuition
the student has paid or signed a contract for which the school has
not earned the right to keep.
• Refund reserve – this represents the obligation the school has to
repay money received from a student calculated on the DETC
minimum standards.
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
2
• Reserve for future services – this represents an estimate of the cost
to provide services the school is contractually obligated to perform
based on tuition that has been received and is not subject to refund.
• Accrual of tuition income – this represents services that have been
provided to students but have not been paid by the students.
• Accrual of expenses – this represents expenses that have been
incurred for services to students where the expenses have not been
paid.
In order to demonstrate that it has a sound and financially responsible
operation, an institution accredited by the DETC must adequately
address each of the items above.
Reserve Treatment
A typical accounting transaction for tuition could follow two basic
paths:
1. A student enrolls and pays the full tuition in full (“up front”) for the
course or program.
2. A student enrolls and enters into a contractual agreement to pay the
tuition over a period of time, usually several months. There is
usually a down payment required and interest is charged on the
outstanding balance owed.
The accounting treatment for the first pattern would be to record the
receipt of cash as an asset and the balancing entry would be to “reserve
for unearned income,” a liability account. As lessons/courses are
submitted for school servicing, income from services would be recorded
by reducing the reserve for unearned income and increasing income.
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
3
When the entire course has been completed, i.e., when the last required
assignment has been submitted to the school by the student, all the
tuition would be included in income and the associated liability would
be zero. Using this method would provide an adequate reserve/liability
for refunds required under the DETC Accreditation Standards, and no
reserve for future services would be required.
Balance Sheet: An Illustration
Assets
Cash $1,000
Liabilities
Reserve for unearned income $1,000
First lesson completed -100
All lessons completed -900
0
Income Statement
Tuition income First lesson completed 100
Tuition income All lessons completed 900
1,000
The reserve for unearned revenue may also be eliminated by the
expiration of the contract. The use of a fixed contractual term for each
student enrollment is allowed by DETC standards. This contractual
term must be of sufficient duration to allow a typical student to
complete the course/program within that period. Institutions should be
able to prove that a clear majority of students complete the course/
program well within any term period. The expiration of the contract
term would allow the school to include in income all tuition that had
been received and eliminate any related reserve for unearned income on
that contract. As the expiration of the contract terminates the obligation
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
4
for future services to the student, no liability would need to be recorder
for future services.
Under the second pattern, the school would record the down payment as
an increase in the asset – cash, the tuition receivable as an asset (if the
period the receivable is payable over more than twelve months, it would
be split between a current and a long term asset), and an off-setting
liability – reserve for unearned income. The income recognition would
follow the first pattern with a supplemental evaluation of the
collectibility of the tuition receivable.
The collectibiltiy of receivables must be reviewed periodically. This
evaluation would result in the establishment of a reserve for bad debts.
The offset to the reserve for bad debts is a bad debt expense on the
income statement. This reserve can be established based on historical
analysis of collectibility of accounts and/or actual analysis of the
existing receivables. As any tuition receivable is deemed to be
uncollectable, the amount should be written off. To write off tuition
receivables, the school would reduce the accounts receivable asset and
reduce the allowance for bad debts. This may also require an adjustment
to the reserve for unearned income. If the income related to the
receivable had not been included in income, then the offset to the
receivable would involve the reduction of the reserve for unearned
income.
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
5
Balance Sheet
Assets
Cash $100
Payment on accounts receivable 100
Payment on accounts receivable 500
$700
Accounts receivable 900
Payment on accounts receivable -100
Payment on accounts receivable -500
$300
Reserve for bad debts -300
Liabilities
Reserve for unearned income 1,000
First lesson completed -100
All lessons completed -900
0
Income Statement
Tuition income First lesson completed 100
Tuition income All lessons completed 900
1,000
Bad debts -300
Net income $700
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
6
Alternative Reserve Treatment
Some schools may record the entire tuition as income when received or
when a contract is signed. Schools using this approach would be
required to establish reserves for refunds and reserves for future service
obligations. The reserve for refunds should be calculated based on the
DETC minimum tuition refund policies for all existing students. This
requires an analysis of the number of courses/lessons completed to
determine the school’s financial obligation to the students. When the
refund reserve is established, income would be reduced by the same
amount.
Even though the school does not have an obligation to refund tuition, it
may have an obligation to provide services to the student. This
obligation—reserve for future services—should reflect the anticipated
cost to provide the educational elements to the student. This reserve
creates a liability on the balance sheet and an expense on the income
statement.
If the school uses a reasonably and justifiable fixed contract term, both
of the above reserves would be reduced to zero at the end of the term
contract period.
Use of the alternative reserve method should be done with caution, as a
standard accounting principle is to match income and expense to the
period in which the income is earned. If a school’s contractual
obligation with a student is greater than twelve months, the alternative
method could overstate current period income. For example, a student
enrolls in a four year bachelors degree program for $20,000. The
student completes half of the program by the end of year two, and
pursuant to DETC guidelines, is no longer entitled to a refund. The
school would take $10,000 into income in that year (the amount that
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
7
was previously treated as a refund reserve), and set up a reserve for
future services to offset that income. This net of the two items would be
the net income for that student’s remaining involvement with the
school. Then, for the next two years allotted to the provisions of
services, the school would show no income or expense. For illustration,
assume the amount for future services is $5,000 and there are 100
students in that situation. The school in year two would include
$500,000 ($10,000 – 5,000 = $5,000; $5,000 * 100 = $500,000) in net
income for year two and nothing in years three and four.
In today’s tumultuous accounting environment, schools should use
conservative accounting practices in dealing with income recognition
and reserves.
Income Tax Issues
Unfortunately for for-profit schools, the tax treatment of income and
reserves is significantly different than the financial statement treatment.
The Internal Revenue Code requires the inclusion in income of any cash
received that does not have a contractual obligation to be repaid. The
Code also does not allow the deduction of reserves from income. It only
allows the deduction of actual incurred expenses. In the example at the
end of the last section, the tax result would be taxable income of
$1,000,000 ($10,000 per student no longer required to be repaid times
100 students).
Summary
DETC’s continued stature as a “nationally recognized” accrediting
association hinges on its accredited institutions maintaining a high level
of financial responsibility, and running a sound and ethical operation.
The proper and conservative handling of reserves has a significant
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
8
impact on demonstrating the school’s ability to be financially able to
deliver high quality instruction and educational services.
Notes
Accounting standards and the tax laws are constantly changing. The
information included in this DETC Occasional Paper is for general
guidance only, and is based on DETC standards, accounting standards,
and tax laws in effect on May 31, 2005. Each institution should consult
its own qualified legal, accounting, and tax professionals for guidance
in their unique situations.
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
9
Appendix 1
Footnote 1: (Accreditation Standard X)
X. FINANCIAL RESPONSIBILITY (The institution is financially able
to deliver high quality instruction and educational services.)
A. Financial Practices
The institution shows, by complete, comparative financial statements
covering its two most recent fiscal years, that it is financially responsible
and that it can meet its financial obligations to provide instruction and
service to its students. (Financial statements must be prepared “in
conformity with generally accepted accounting principles.”)
B. Demonstrated Operation
In all respects, all institutions must document continuous sound and ethical
operations. Applicant institutions must document two* continuous years of
sound and ethical operation as a bona fide electronically-delivered, online
or other delivery method of distance study (*one year if the parent
company is accredited by another accrediting agency that is recognized by
either the U.S. Department of Education or the Council for Higher
Education Accreditation). This documentation shall show that the name
being used by the school is free from any association with activity that
could damage the standing of the accrediting process, such as illegal
actions, unethical conduct, or abuse of consumers.
Footnote 2:
IX.A. 6. Describe what reserves are kept for honoring future service
obligations, bad debts, and refunds.
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
10
Appendix 2
Under DETC’s D.1. - Examiner’s Rating Form for All Institutions, under Standard
IX. Financial Responsibilities, you should be able to answer “Yes” to the following
questions.
IX. A. Financial Practices
1. Do the institution’s financial statements demonstrate overall financial
responsibility or does the parent company guarantee financial stability?
a. Are the financial statements complete?
b. Are all notes and supplementary schedules to statements included?
c. Do the statements include an income statement, balance sheet, statement
of cash flows, and explanatory notes?
d. Did the institution provide detailed operating statements for institution
divisions?
e. Are the statements prepared using the accrual method of accounting?
2. Did the institution submit a properly executed copy of the appropriate Teach-
Out Commitment form?
3. Does the institution use an adequate budget-making process?
4. Are current assets sufficient to meet current liabilities?
5. Did the institution answer “No” to the question, “Has the institution ever
entered into bankruptcy?”
6. Are the reserves for honoring future obligations, bad debts accurate, and
refunds adequate?
7. Do the accounts payable (numbers, amounts, and age) reflect sound financial
responsibility and management?
8. Are inventories of course materials adequate for current and future servicing
requirements?
9. Does the institution have adequate insurance coverage, and is it properly
allocated?
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
11
10.For an institution with resident training program(s), is there adequate liability
coverage for students at resident training sites?
IX. B. Demonstrated Operation
1. Has the institution documented at least two continuous years* of experience as
a distance education institution (with the period starting with the date of the
first enrollment)? (*one year if the institution or its parent is accredited by
another recognized accrediting agency.)
2. Has the institution (or parent company) demonstrated sound financial
responsibility and ethical operation for the preceding two years?
3. Has the institution presented the proper documentation proving it is approved
or licensed as appropriate?
4. Has the institution documented that the name being used by the institution is
free from any association with activity that could damage the standing of the
accrediting process?
5. Does the institution offer instruction that is predominately at a distance?
6. Degree Program(s): Can the institution document that it has a completely
developed curriculum with at least one academic degree program in which
students have been enrolled for a minimum of two years (one year if parent
company is accredited by another recognized accrediting agency)?
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
12
Appendix 3
H.2. Policy on Commission-Requested Financial Statements
When the Accrediting Commission requests a financial statement from an
accredited or applicant institution, the financial statement must be prepared “in
conformity with generally accepted accounting principles,” often referred to as
“GAAP.” This includes the use of accrual method of accounting. The Commission
has the option of requesting one of these two types of financial statements:
1. An audited financial statement certified by an outside, independent, certified
public accountant in accordance with standards established by the American
Institute of Certified Public Accountants.
2. A reviewed financial statement. A “reviewed financial statement” consists of
inquiries of institution management by an outside, independent, certified
public accountant and includes analytical procedures applied to financial data.
It is less in scope than an audited statement and does not have an “opinion”
regarding the financial statements. The accountant must, however, state that he
or she is not aware of any material modifications that would need to be made
to the statements in order for them to be in conformity with standards
established by the American Institute of Certified Public Accountants.
All financial statements should cover the activities of the legal entity that has the
responsibility for operating the accredited distance education institution.
Minimum Acceptable Financial Statements
At a minimum, the financial statements (audited or reviewed) must be comprised
of:
A. A Comparative Statement, which displays the most recent two fiscal years of
financial data, preferably in side-by-side columns.
B. Balance Sheet, reflecting assets, liabilities, equity, and retained earnings;
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
13
December 30, 2005
Mr. Michael P. Lambert, Executive Director
Distance Education and Training Council
1601 18th Street, NW
Washington, DC 20009
Dear Mr. Lambert:
As a certifying officer, I acknowledge my responsibilities for establishing and
maintaining controls and procedures that ensure that I am aware of material
information relating to [name of institution]. The attached report discloses (a) all
material weaknesses in internal controls that came to the attention of certifying
officers, (b) any fraud involving management or employees with significant
responsibilities, and (c) any significant changes in internal controls, including
actions to correct material weaknesses, during the period covered by this report.
C. Income Statement, reflecting revenues, expenses, and profits and losses;
D. Statement of Cash Flows, reflecting the sources and uses of working capital;
and
E. Explanatory Notes, which reflect all of the disclosures or footnotes required
by generally accepted accounting principles.
These statements must be as of the date of the institution’s most recently ended
fiscal year or a date otherwise specified by the Accrediting Commission.
Letter of Financial Statement Validation
This letter must accompany an institution’s financial statements when submitted as
an exhibit with a Self-Evaluation Report, or anytime when the Accrediting
Commission calls for a financial statement from an institution, or when an
institution’s Annual Report submission requires a financial statement (e.g., when
there’s a loss is reported).
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
14
I have reviewed this report. Based on my knowledge:
(1) This report contains all the facts needed to prevent it from being misleading
and it contains no untrue statements;
(2) Financial statements and other information fairly present the financial
condition, results of operations and cash flow.
Certified by:
Chief Executive Officer: _____________________________________
Chief Financial
Officer:________________________________________
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
Other Occasional Papers Available
Number 1—Student Services: Achilles Heel or Crown Jewel? by
Michael P. Lambert, Executive Director, DETC
Number 2—What Manager Doesn’t Study at Home? by Dr. Gordon
Wills, Principal, The International Management Centres
Number 3—Toward Better Service and Testing by Dennis Foltz,
Vice President of Education and Operations, Gemological Institute
of America
Number 4—Testing Home Study Advertising by Jack Thompson,
Consultant
Number 5—Conducting Graduate Surveys by Mary McKeown,
Vice President, American School
Number 6—Enrollment Contracts for Home Study Schools by
William Wright, American School
Number 7—Evaluating Your School’s Worth by Michael P. Lambert,
Executive Director, DETC
Number 8—Getting the Most PR for Your School by Sally R.
Welch, Assistant Director, DETC
Number 9—The Effectiveness of the Home Study Method edited by
Sally R. Welch, Assistant Director, DETC
15
DETCOCCASIONALPAPERTWENTYTHREE
16
Number 10—Home Study Academic Transcripts by Sally R.
Welch, Assistant Director, DETC
Number 11—Admissions Policies: The Key to Success by
Josephine L. Ferguson, Member, DETC Accrediting Commission
Number 12—How to Write an Analytical Self-Evaluation Report
by Josephine L. Ferguson, Member, Accrediting Commission of
the DETC
Number 13—Building a Distance Education Faculty by Dr. John
E. Jessup, Academic Dean, American Military University
Number 14—Embracing the Internet by Carol Oliver and Dr.
Gordon Wills, International Management Centres
Number 15—Strategies for Helping Students Transfer Credits by
Ali Fares, Cleveland Institute of Electronics
Number 16—How to Develop a Plan of Succession by Robert
McKim Norris, Jr., Andrew Jackson University
Number 17—How to Assess Experiential Learning by Lisa J.
Davis, California College for Health Sciences
Number 18—Managing Education Programs in the Information
Age by Tina J. Parscal, ISIM University
Number 19—Converting Courses to Online by Dr. Judith M.
Smith, SiteTrainer.com.
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
Number 20—Confessions of an Early Internet Educator by Jack
R. Goetz, Concord University School of Law
Number 21—Global Activities of DETC Institutions by Irving H.
Buchen, IMPAC University
Number 22—International Academic Equivalence: A Primer by
Irving H. Buchen, IMPAC University and David John Le Cornu,
St. Clements University
D E T C O C C A S I O N A L P A P E R T W E N T Y T H R E E
1601 18TH STREET, N.W.
WASHINGTON, D.C. 20009-2529
(202) 234-5100
http://www.detc.org
E-Mail: detc@detc.org
DISTANCE EDUCATION AND TRAINING COUNCIL
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1) Contact new dealer for monthly work
15th-19th Day After Month End
1) Sales tax sent to dealer
25-30 After End Month Work Received
1) Financial statements sent to dealer
Closing
Check List
10 Days Before Closing
____ Review sellers sales tax records for
successor liabilities
____ Arrange for closing inventory to be taken
____ Apply for sales tax number
____ Apply for alcohol and tobacco licenses
____ Obtain copies of sellers commercial personal
property tax returns
____ Apply for DBA as Amoco…
____ Set allocation of purchase price for assets, goodwill
and non-compete with seller
____ Arrange for transfer of existing phone number with
seller
1 Day Before Closing
____ Transfer funds for closing to your attorney’s trust
account (any excess funds will be returned at closing)
____ Purchase change bank for opening
____ Be sure transfer letters will be provided for pay
phones, and other vending income sources
Day of Closing
____ Check inventory to be purchased for out of date items
or items that are not in sellable condition
a complete package of services
and support for Amoco Dealers.
To assist new Dealers in getting
their business off to a proper start
our program expands on and
reinforces the lessons they learn in
new dealer training.
Franchise Business Systems offers
a complete package of services
and support for Amoco Dealers.
To assist new Dealers in getting
their business off to a proper start
our program expands on and
reinforces the lessons they learn in
new dealer training.
Your Logo
Here
(800) 382-1040
Services
Offered
Monthly Accounting Service
Payroll Service
Tax Preparation & Planning
Business Plan Development
Pre Purchase Evaluation
Buyer Due Diligence Reviews
Retail Inventory Set-up
Merchandising Assistance
Incentive Plan Development
Audit Representation
Monthly Accounting
Service Reports
Profit & Loss Statement
Balance Sheet
Departmental Sales, Cost of Sales & Gross
Margin Report
Departmental Shrinkage Report
Gasoline Sales Graph
Gross Profit By Department Graph
W.A.M. ( Pool Margin) Report
Bank Reconciliation
Reconciliation of Daily Books & Daily Sales
Analysis Report
Reconciliation of Accounts Payable, Accounts
Receivable & Petty Cash
Complete Transaction Detail Reporting
Sales Tax Preparation
Quarterly Payroll Tax Returns
Monthly Accounting
Service Also
Includes
Free Custom Daily Books (Paper Books)
Free Daily Book Software & Support
Training on Completion of Daily Books
Training & Support for Retail Inventory System
Assistance With M.I.R. & D.I.R. When Necessary
Programming Ruby For Categories &
Departments
Support For All Sales Tax Questions
Support For All Payroll Tax & Personnel
Questions
Business Tax Planning
Assistance With Financing & Bank Paperwork
1 Hour per Month Business Consulting
Our basic monthly accounting standard fee is
$350.00 per month and covers the complete
monthly accounting service.
Amoco Dealers receive a 15% discount off our
standard fee when referred by an S.O.M. To
receive the discount, billing must be handled by
EFT.
Monthly Accounting
Service Setup
There is a one time setup fee for
all new Amoco monthly
accounting service clients of
$250.00
This fee covers the following
services.
Assistance with Amoco business plan
Pre closing meetings or telephone consultations
Review of purchase and asset allocations
Attendance at and assistance with closing
Conversion of retail inventory to cost for
purchase
Programming of Ruby categories and reports
Initial training on daily books
Setup of accounting system
Sample Financial Statements
For
Retail Petroleum Dealers
Sample Daily Books Recap
For
Retail Petroleum Dealers
Payroll Services
Free set-up
Free checks
Free basic maintenance
Free new employee set-up
Free rehires
Free departmentalization
Fast payroll turnaround
We handle all payroll tax deposits
Personal service
Direct Deposit Available
Ready-to-sign Quarterly Tax Returns
We prepare reconciled W-2’s
Payroll Service
Fees
Number of Fee per Pay Period
Employees Weekly Bi-Weekly Monthly
1 17.00 22.00 32.00
2 18.00 23.00 33.00
3 19.00 24.00 34.00
4 20.00 25.00 35.00
5 21.00 26.00 36.00
6 22.00 27.00 37.00
7 23.00 28.00 38.00
8 24.00 29.00 39.00
9 25.00 30.00 40.00
10 26.00 31.00 41.00
11 26.75 31.75 41.75
12 27.50 32.50 42.50
13 28.25 33.25 43.25
14 29.00 34.00 44.00
15 29.75 34.75 45.75
16 30.50 35.50 46.50
17 31.25 36.25 47.25
18 32.00 37.00 48.00
19 32.75 37.75 48.75
20 33.50 38.50 49.50
Custom quotes available for 21 or more
Fee of $5.00 per W-2 (minimum $10.00) at
year end. Delivery/Postage at Cost
Tax Services
Our tax department provides complete tax
preparation, tax planning, and audit
representation services.
Because we specialize in helping retail
petroleum , we keep up on all the latest tax
matters that affect their business. We know
what the IRS is looking for when they audit
retail petroleum dealers, so we can help them
avoid the tax traps that exist in their industry
We can help dealers comply with the complex
sales tax rules for C-Store and Bay
Operators.
Our year round tax planning, will help
make sure you pay the lowest tax the law
allows.
We can help you take advantage of the new
Work Opportunity Tax Credit.
Sample Business Plan
For
Dealer School
New Dealer
Setup Outline
First Meeting or Consultation
Prospective Dealer Consultation
1) Review accounting needs and services available
2) Review choice of business entity
3) Supply prospective dealer with industry standards
4) Review areas of due dilligence
Second Meeting or Consultation
Dealer Approved By Amoco (Pre dealer school)
1) Complete accounting services agreement
2) Assist with completion of Amoco business plan
3) Assist with due diligence as requested
Pre Closing Meeting or Consultation
1) Complete sales tax application
2) Complete application for temporary alcohol and
tobacco license
3) Complete DBA paperwork
4) Setup payroll service & payroll information
New Dealer
Setup Outline
At Closing
1) Assist with inventory calculations
2) Program Ruby categories and reports
3) Provide shift report forms
4) Provide payroll setup for new employees
5) Review store layout and procedures with new
dealer.
5 Days After Closing
1) Train new dealer on completion of daily books
2) Assist as necessary with accounting and accounting
procedures
3) Obtain copies of closing statements and purchase documents
7-10 Days After End of First Month
1) Contact new dealer for monthly work
15th-19th Day After Month End
1) Sales tax sent to dealer
25-30 After End Month Work Received
1) Financial statements sent to dealer
Closing
Check List
10 Days Before Closing
____ Review sellers sales tax records for
successor liabilities
____ Arrange for closing inventory to be taken
____ Apply for sales tax number
____ Apply for alcohol and tobacco licenses
____ Obtain copies of sellers commercial personal
property tax returns
____ Apply for DBA as Amoco…
____ Set allocation of purchase price for assets, goodwill
and non-compete with seller
____ Arrange for transfer of existing phone number with
seller
1 Day Before Closing
____ Transfer funds for closing to your attorney’s trust
account (any excess funds will be returned at closing)
____ Purchase change bank for opening
____ Be sure transfer letters will be provided for pay
phones, and other vending income sources
Day of Closing
____ Check inventory to be purchased for out of date items
or items that are not in sellable condition
Online Accounting Courses
Online Courses in Accounting and Finance
Online courses, training, and diploma programs in accounting, and finance. Topics include: financial accounting, financial statements, financial planning, estate planning, tax preparation, QuickBooks, and more.
Online Accounting Courses
Accountants are responsible for the financial accounting and auditing activities of a business, such as overseeing the books, payroll, tax compliance, and the like. If you're great with numbers and a disciplined self-starter, then this lucrative career path is right for you.
What You'll Learn in Online Accounting Courses
You'll study all aspects of accounting in online accounting courses, including auditing, cost accounting, and individual and corporate taxation. You'll also hone your ability to work with accounting information systems. Accounting is a four-year degree or more if you choose the CPA path. However, accelerated and flexible study programs are available online. Also, short term, one or two-year online accounting courses prepare you for a para-professional accounting position, assisting in auditing and tax preparation.
Bright Prospects for Your Accounting Career
The combination of new federal accounting and auditing laws with increased degree requirements that effectively add an additional year to the CPA have created a dearth of accountants. As a result, accountants were the most in-demand of all college grads in 2005. Beginning accountants with Bachelor's Degrees in Accounting received starting salaries averaging $44,564, according to the National Association of Colleges and Employers. Experienced corporate auditors are pulling down from $70-$85,000 on average. Regardless of your position, expect to work overtime during tax season if you choose accounting as your career.
Why Study Accounting
For those who don't know, Accounting is the language of business and is needed now more than ever before. It is the backbone of all businesses and therefore is a very broad subject. Today, there are more CEOs with degrees in accounting than any other area of study. College students that are unsure which area of business they would like to study should seriously consider accounting. Career opportunities associated with a degree in accounting are practically endless due to how broad the subject is. Job opportunities include public accounting, government, private industry and forensic accounting. There are also opportunities in tax preparation, cost management and even jobs with the FBI. Accounting opportunities are not limited to the ones named above.
Another reason college students should consider studying accounting is the condition of the economy. Due to the recession that our economy is going through, many industries are cutting down on jobs. One area of business that is still thriving is accounting. Various businesses are realizing how important it is to cut down on costs to make their business more profitable during this time of economic crisis. They also realize how important it is to have strict set of internal controls to make their business more efficient. The only way to ensure that both of these can happen is through stringent accounting. After reading this it should be no surprise that accounting jobs may be on the rise.
According to the American Institute of Certified Public Accountants, 91% of accounting firms expect hiring to increase or at least remain the same. This is great news for college graduates who are seeking a career in accounting. So many college students have been worried that they may not have a job when they graduate due to today's economic crisis. With a steady rise in unemployment it is comforting to see that there is still a high demand for accountants.
Job opportunities are not the only reason that college students should consider accounting. The job can be very rewarding as well. The average salary for accountants as of March 9, 2009 is $51,000. This salary can change based on company, location and industry.
Internal controls are important for a business to control internal theft. Without a good set of internal controls it would be too easy for employees to steal cash or even merchandise. An important aspect of internal controls that is important is separation of duties. This means that no one person performs all the jobs of a company. This ensures that one person checks someone else's work making it difficult to fabricate accounting data to steal money from the company. Accounting provides a basis for these controls and checks to see if they are being enforced.
With accounting frauds becoming more and more of a problem there is more of a demand for people with accounting knowledge in the FBI. They need people who are able to decipher financial statements and pick out bad accounting form in order to uncover sophisticated accounting frauds. Accountants are also needed during trial to provide lawyers and prosecutors with testimonial evidence. It can be a very exciting and rewarding area of accounting. Many accountants feel rewarded by uncovering and prosecuting those who try to profit from manipulating financial data. With more and more accounting frauds being committed each year, there is more of a need for strict audits by accounting firms. This means more business for accounting firms and ultimately more jobs for accountants.
If you are a college student searching for a major it would seem wise to pursue a degree in accounting. The opportunities that this degree can provide for you may be endless. You may find yourself working for a large accounting firm or even owning your own private, small scale CPA Firm. You may also become a CEO or a CFO of just about any company being that accounting is the backbone of business. It is safe to say you can't go wrong with a degree in accounting.
Read more: http://www.articlesbase.com/careers-articles/why-study-accounting-809688.html#ixzz0p8FcOeaY
Under Creative Commons License: Attribution
Another reason college students should consider studying accounting is the condition of the economy. Due to the recession that our economy is going through, many industries are cutting down on jobs. One area of business that is still thriving is accounting. Various businesses are realizing how important it is to cut down on costs to make their business more profitable during this time of economic crisis. They also realize how important it is to have strict set of internal controls to make their business more efficient. The only way to ensure that both of these can happen is through stringent accounting. After reading this it should be no surprise that accounting jobs may be on the rise.
According to the American Institute of Certified Public Accountants, 91% of accounting firms expect hiring to increase or at least remain the same. This is great news for college graduates who are seeking a career in accounting. So many college students have been worried that they may not have a job when they graduate due to today's economic crisis. With a steady rise in unemployment it is comforting to see that there is still a high demand for accountants.
Job opportunities are not the only reason that college students should consider accounting. The job can be very rewarding as well. The average salary for accountants as of March 9, 2009 is $51,000. This salary can change based on company, location and industry.
Internal controls are important for a business to control internal theft. Without a good set of internal controls it would be too easy for employees to steal cash or even merchandise. An important aspect of internal controls that is important is separation of duties. This means that no one person performs all the jobs of a company. This ensures that one person checks someone else's work making it difficult to fabricate accounting data to steal money from the company. Accounting provides a basis for these controls and checks to see if they are being enforced.
With accounting frauds becoming more and more of a problem there is more of a demand for people with accounting knowledge in the FBI. They need people who are able to decipher financial statements and pick out bad accounting form in order to uncover sophisticated accounting frauds. Accountants are also needed during trial to provide lawyers and prosecutors with testimonial evidence. It can be a very exciting and rewarding area of accounting. Many accountants feel rewarded by uncovering and prosecuting those who try to profit from manipulating financial data. With more and more accounting frauds being committed each year, there is more of a need for strict audits by accounting firms. This means more business for accounting firms and ultimately more jobs for accountants.
If you are a college student searching for a major it would seem wise to pursue a degree in accounting. The opportunities that this degree can provide for you may be endless. You may find yourself working for a large accounting firm or even owning your own private, small scale CPA Firm. You may also become a CEO or a CFO of just about any company being that accounting is the backbone of business. It is safe to say you can't go wrong with a degree in accounting.
Read more: http://www.articlesbase.com/careers-articles/why-study-accounting-809688.html#ixzz0p8FcOeaY
Under Creative Commons License: Attribution
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