Showing posts with label accounting lesson. Show all posts
Showing posts with label accounting lesson. Show all posts
Thursday, June 3, 2010
Thursday, May 27, 2010
Financial Accounting Vs Managerial Accounting - Difference between financial and Managerial Accounting
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?"
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?"
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
Accounting and Business Services for Amoco Dealers
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.
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
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
Wednesday, May 26, 2010
financial accounting standards
financial accounting standards
Professional View
Annual Subscription $850 - Discounts for Multiple Users
Concurrent use product, providing full functionality and advanced navigation including:
* Browsing by Topic, searching, and Go To navigation
* Joining sections and combining subsections for viewing user-selected excerpts
* Cross reference report and archive to locate and access legacy standards
* Various print options including Printer-Friendly utility for viewing source references
* Archive features for accessing any previous version of the content
* Glossary term display feature for quickly viewing definitions
* What’s New feature for accessing recently issued content
* What Links Here feature for identifying content related to a specific paragraph
* Email feature for sending comments to colleagues
* Personal annotation feature for keeping notes about selected content
* Current location feature for quickly assessing where you are.
Academic View
Free access to Professional View
* Accounting program faculty and students go to Academic Accounting Access
Basic View
Free access:
* Browsing by Topic
* Limited print functionality
* Utility to identify the location of legacy standards.
Professional View
Annual Subscription $850 - Discounts for Multiple Users
Concurrent use product, providing full functionality and advanced navigation including:
* Browsing by Topic, searching, and Go To navigation
* Joining sections and combining subsections for viewing user-selected excerpts
* Cross reference report and archive to locate and access legacy standards
* Various print options including Printer-Friendly utility for viewing source references
* Archive features for accessing any previous version of the content
* Glossary term display feature for quickly viewing definitions
* What’s New feature for accessing recently issued content
* What Links Here feature for identifying content related to a specific paragraph
* Email feature for sending comments to colleagues
* Personal annotation feature for keeping notes about selected content
* Current location feature for quickly assessing where you are.
Academic View
Free access to Professional View
* Accounting program faculty and students go to Academic Accounting Access
Basic View
Free access:
* Browsing by Topic
* Limited print functionality
* Utility to identify the location of legacy standards.
Tuesday, May 25, 2010
Bookkeeping
Hello my name is Dave and yes I'm a bean counter. No I didn't say alcoholic, that's a soft drink not a beer in my hand, and this is not a meeting of Alcoholics Anonymous. For those of you that don't know a bean counter is slang sometimes used to refer to a bookkeeper. I've searched the web for good free bookkeeping and accounting tutorials and came to the conclusion that they're hard to find so this is my attempt to try and fill the void. What qualifies me to attempt this task ? I guess you can tell it's not my fancy dress code. I have over 30 years experience in business and even taught at a small business college for a couple of years. My method of passing on knowledge is to make the subject easy to understand and to use simple examples and terminology to illustrate the concepts being presented. If you're anything like me I learn a lot easier when I can see an example of what we're talking about. Tell me and show me too.
This free bookkeeping tutorial is geared to business owners, managers, and individuals who have not had any formal bookkeeping training or on the job experience and need or want to learn the basics of bookkeeping. In other words, this tutorial is for beginners (newbies) or those needing a quick refresher and is only an introduction into the world of accounting. They say a little knowledge is a dangerous thing. Well my goal is to make you dangerous.
Tutorial Navigation
A menu of all the lessons is presented at the top and bottom of all the lessons. A back and next arrow also allow you to go back to the prior lesson or on to the next lesson. In addition, some Lessons contain Interactive Tables, Forms, and Lists. These sections include Navigation Instructions. The Lessons also include Links to additional learning materials and quizzes.
# Additional Needs My bookkeeping and accounting quizzes and games require Adobe's Free Macromedia Flash Player which is normally already installed on your computer.
Get Adobe's Free Flash Player.
# My Skill Tests require Javascript to be enabled in your browser. Most computers also already have this feature enabled.
What's Covered ?
This Introduction discusses the types of business organizations, types of business activities, users of financial information, bookkeeping systems, accounting rules, and the cash and accrual basis of accounting.
Lesson 1 The Bookkeeping Language introduces you to some of the terminology and definitions used in the accounting and bookkeeping language.
Lesson 2 Property and Property Rights explains Property & Property Rights, the Accounting Equation, double entry bookkeeping, and how business transactions affect the equation.
Lesson 3 Debits and Credits introduces and explains Debits and Credits and how they affect the Accounting Equation and are used to record business transactions.
Lesson 4 Recording Business Transactions explains and uses examples to illustrate how business transactions are properly analyzed, recorded, and summarized.
Lesson 5 The General Ledger and Journals explains what General Ledger and Journals are, how they're used, and what bookkeeping purposes they serve.
Lesson 6 Financial Statements explains what financial statements are, how they're created, and how they're used.
Lesson 7 Review of Major Concepts reviews the major definitions, concepts, and bookkeeping records previously discussed and necessary for an understanding of bookkeeping.
Introduction
Why Learn Bookkeeping ?
Why would you want to learn bookkeeping and keep up to date financial records anyway ? Can't you hire an accountant to come after the end of the year and get your check book and shoe box and do your taxes ? Sure you can ! And yes you will have adequately fulfilled your taxpayer obligations. But in order to run a business and know what, where, and when to take corrective actions requires business information. How do you get and where do you find this information ? You don't if you don't keep accurate and current records about your business financial activities (bookkeeping).
Users of Financial Information
Who needs financial information about a business besides the owner(s) ?
Users can be grouped into two broad categories namely internal users and external users. Internal users are the managers and the owners and employees who actually work for the business. External users include lenders and other creditors (suppliers), investors, customers, and governmental regulatory and taxing agencies.
Why do they need financial information ?
Users need this information to make knowledgeable decisions. Lenders and other creditors want to make sure that they will be paid back for the credit that they have extended to a business. Even lenders that offer alternatives to small business loans like credit card factoring, more commonly known as business cash advances, will need this information because they will base their funding decisions on your credit card receivables history. By analyzing financial information, they at least have something to base their lending or credit decision on. The days of the "friendly" banker are gone. You need to provide them with financial information as a basis for their loan decisions. A "good ole boy" handshake won't cut it now. Similarly, customers want to make sure that the business they're buying products or services from is going to be around and not be in such a poor financial position as to have to close its doors. Other users have their own reasons for using this financial information.
Since users require financial information to base their decisions on, let's determine what is required to fill this need.
Let's begin with a definition for accounting.
Accounting is the art of analyzing, recording, summarizing, reporting, reviewing, and interpreting financial information.
Let's also define what bookkeeping is and is not. I hate to admit this but I'm going to tell a true story about myself in high school. I thought I was fairly smart back in my high school days and took all the college prep classes. My high school offered bookkeeping classes but I had no clue as to what that course was about. I thought bookkeeping was a course on how to properly organize and stack the reading books in the proper place and shelves in the library using that Dewey decimal code. That is keeping the books isn't it ? Well kinda, but that's not the bookkeeping you're going to learn here. Bookkeeping is one of the components of accounting. Think of accounting as the mom and bookkeeping as one of her children.
Bookkeeping is the process of recording and classifying business financial transactions (activities). In simple language-maintaining the records of the financial activities of a business or an individual. Bookkeeping's objective is simply to record and summarize financial transactions into a usable form that provides financial information about a business or an individual.
Accountants normally plan and set up the accounting and bookkeeping system for a business and turn over the day to day record keeping to the owner or one of his/her employees. In this age of computers, more and more of the daily bookkeeping is being done using bookkeeping software and computers although some businesses still maintain manual records. Due to the reasonable cost of computers and software, I recommend an automated (computer) bookkeeping system. Visit my site for some recommended software. In order to illustrate and understand what is actually being recorded and summarized by a computer bookkeeping system (behind the scenes) my lessons will illustrate the manual method of recording a company's financial information.
This free bookkeeping tutorial is geared to business owners, managers, and individuals who have not had any formal bookkeeping training or on the job experience and need or want to learn the basics of bookkeeping. In other words, this tutorial is for beginners (newbies) or those needing a quick refresher and is only an introduction into the world of accounting. They say a little knowledge is a dangerous thing. Well my goal is to make you dangerous.
Tutorial Navigation
A menu of all the lessons is presented at the top and bottom of all the lessons. A back and next arrow also allow you to go back to the prior lesson or on to the next lesson. In addition, some Lessons contain Interactive Tables, Forms, and Lists. These sections include Navigation Instructions. The Lessons also include Links to additional learning materials and quizzes.
# Additional Needs My bookkeeping and accounting quizzes and games require Adobe's Free Macromedia Flash Player which is normally already installed on your computer.
Get Adobe's Free Flash Player.
# My Skill Tests require Javascript to be enabled in your browser. Most computers also already have this feature enabled.
What's Covered ?
This Introduction discusses the types of business organizations, types of business activities, users of financial information, bookkeeping systems, accounting rules, and the cash and accrual basis of accounting.
Lesson 1 The Bookkeeping Language introduces you to some of the terminology and definitions used in the accounting and bookkeeping language.
Lesson 2 Property and Property Rights explains Property & Property Rights, the Accounting Equation, double entry bookkeeping, and how business transactions affect the equation.
Lesson 3 Debits and Credits introduces and explains Debits and Credits and how they affect the Accounting Equation and are used to record business transactions.
Lesson 4 Recording Business Transactions explains and uses examples to illustrate how business transactions are properly analyzed, recorded, and summarized.
Lesson 5 The General Ledger and Journals explains what General Ledger and Journals are, how they're used, and what bookkeeping purposes they serve.
Lesson 6 Financial Statements explains what financial statements are, how they're created, and how they're used.
Lesson 7 Review of Major Concepts reviews the major definitions, concepts, and bookkeeping records previously discussed and necessary for an understanding of bookkeeping.
Introduction
Why Learn Bookkeeping ?
Why would you want to learn bookkeeping and keep up to date financial records anyway ? Can't you hire an accountant to come after the end of the year and get your check book and shoe box and do your taxes ? Sure you can ! And yes you will have adequately fulfilled your taxpayer obligations. But in order to run a business and know what, where, and when to take corrective actions requires business information. How do you get and where do you find this information ? You don't if you don't keep accurate and current records about your business financial activities (bookkeeping).
Users of Financial Information
Who needs financial information about a business besides the owner(s) ?
Users can be grouped into two broad categories namely internal users and external users. Internal users are the managers and the owners and employees who actually work for the business. External users include lenders and other creditors (suppliers), investors, customers, and governmental regulatory and taxing agencies.
Why do they need financial information ?
Users need this information to make knowledgeable decisions. Lenders and other creditors want to make sure that they will be paid back for the credit that they have extended to a business. Even lenders that offer alternatives to small business loans like credit card factoring, more commonly known as business cash advances, will need this information because they will base their funding decisions on your credit card receivables history. By analyzing financial information, they at least have something to base their lending or credit decision on. The days of the "friendly" banker are gone. You need to provide them with financial information as a basis for their loan decisions. A "good ole boy" handshake won't cut it now. Similarly, customers want to make sure that the business they're buying products or services from is going to be around and not be in such a poor financial position as to have to close its doors. Other users have their own reasons for using this financial information.
Since users require financial information to base their decisions on, let's determine what is required to fill this need.
Let's begin with a definition for accounting.
Accounting is the art of analyzing, recording, summarizing, reporting, reviewing, and interpreting financial information.
Let's also define what bookkeeping is and is not. I hate to admit this but I'm going to tell a true story about myself in high school. I thought I was fairly smart back in my high school days and took all the college prep classes. My high school offered bookkeeping classes but I had no clue as to what that course was about. I thought bookkeeping was a course on how to properly organize and stack the reading books in the proper place and shelves in the library using that Dewey decimal code. That is keeping the books isn't it ? Well kinda, but that's not the bookkeeping you're going to learn here. Bookkeeping is one of the components of accounting. Think of accounting as the mom and bookkeeping as one of her children.
Bookkeeping is the process of recording and classifying business financial transactions (activities). In simple language-maintaining the records of the financial activities of a business or an individual. Bookkeeping's objective is simply to record and summarize financial transactions into a usable form that provides financial information about a business or an individual.
Accountants normally plan and set up the accounting and bookkeeping system for a business and turn over the day to day record keeping to the owner or one of his/her employees. In this age of computers, more and more of the daily bookkeeping is being done using bookkeeping software and computers although some businesses still maintain manual records. Due to the reasonable cost of computers and software, I recommend an automated (computer) bookkeeping system. Visit my site for some recommended software. In order to illustrate and understand what is actually being recorded and summarized by a computer bookkeeping system (behind the scenes) my lessons will illustrate the manual method of recording a company's financial information.
Learn the Fundamentals of Accounting
Understanding the basics of accounting can make the difference between success and failure in so many different areas of life. Financial reports, balance sheets, reconciling bank statements--and the ability to create, interpret and implement them--are all tools we can't afford to ignore.
roll today! This is a self-paced, online course. You have 6 months to finish. An instructor will monitor your progress and assess your body of work at course completion.
http://www.universalclass.com/i/crn/30302.htm
roll today! This is a self-paced, online course. You have 6 months to finish. An instructor will monitor your progress and assess your body of work at course completion.
http://www.universalclass.com/i/crn/30302.htm
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