Suppose that you work in the accounting department of Publisher Warehouse, a com

Question

Suppose that you work in the accounting department of Publisher Warehouse, a company that sells annual subscriptions to periodicals, magazines, and other printed materials. Publisher uses the accrual basis of accounting.

Publisher is divided into four units, where each unit is responsible for a particular region. Each unit has an overall revenue quota, and if it is met, all unit members receive a bonus. Most employees consider the quotas to be fair but challenging. On average, a unit will meet its quota about every other year. Over the past two years, one unit has failed to meet its quota. A major reason for this is that two members of the sales team have had significant difficulties outside of work and have been unable to sustain their usual productivity. During the current year, both employees regained their form at work, and at the end of the year the unit was close to its quota. During the last week of the year, the unit received a significant payment for subscriptions for the following year. The payment is big enough to push unit sales over the quota. One of your close friends, who is a member of another unit that did not meet its quota, encourages you to treat the payment as revenue in the current year. "After all," she says, "what's the difference between now and later? Go ahead and count it as revenue this year so that the unit can get its bonus. They've worked hard and deserve it, especially Mike and Julia. I couldn't imagine going through what they did."

Prepare a written response explaining the action you should take given Publisher's accounting policies, explaining the actual and potential consequences of including the payment for subscriptions for the following year in the current year's sales. Consider what and who would be affected by adding the sale to the current year's quota.

Develop a response that includes examples and evidence to support your ideas, and which clearly communicates the required message to your audience. Organize your response in a clear and logical manner as appropriate for the genre of writing. Use well-structured sentences, audience-appropriate language, and correct conventions of standard American English.

Explanation / Answer

BEFORE GOING TO THE CASE STUDY, WE SHOULD FUNDAMENTALY VERY MUCH CLEAR ABOUT THE ACCURAL BASIS OF ACCOUNTING. ACCRUAL BASIS OF ACCOUNTING IS A POLICY OF ACCOUNTING WHERE ALL THE TRANSCATIONS ARE RECORDED ON DUE BASIS RATHER ON CASH BASIS. ON THE OTHER WAY WE CAN SAY THAT THE RECIPT OR PAYMENT OF ACTUAL CASH IS IMMATERIAL TO RECORD A TRANSACTION.

FOLLWOING ARE THE SOME OF THE EXAMPLES ; OUTSTANDING EXPENSES,PREPAID EXPENSES,INCOME RECEIVED IN ADVANCE, ACCURED INCOME.

OUTSTANDING EXPENSES SIMPLY MEANS EXPENSES ALREADY GET DUE BUT TILL NOW NOT PAID, AS WE HAVE DISCUSSED EARLIER PAYMENT IS IMMATERIAL THE OUTSTANDING EXPENSES WILL BE RECORDED IN THAT YEAR WHICH IT RELATE.

PRPAID EXPENSES IS NOTHING BUT EXPENSES PAID IN ADVANCE BEFORE THE DUE DATE, SO HERE AS THE ACTUAL PAYMENT IS MADE FOR THE FUTURE EXPENSES BUT WE CAN'T RECORD THE TRANSACTION IN THE PAYMENT MONTH/YEAR, IT WILL BE TRANSFER TO THE PROPER YAER TO WHICH IT RELATE BY PASSING PROPER ENTRY.

INCOME RECEIVED IN ADVANCE IS THE CASH RECEIVED FOR THE FUTURE INCOME IN ADVANCE, BUT HERE WE CAN'T TREAT IT AS THE INCOME OF THE MONTH/YEAR IN WHICH IT RECEIVED, RATHER IT WILL BE TRANSFERED TO THE YEAR IT ACTUALY RELATES.

ACCURED INCOME ARE THE INCOME WHICH IS NOT RECIVED TILL NOW BUT IT IS ACTUALY BECAME DUE IN THIS PERIOD, THIS WILL BE SHOWN AS AN INCOME OF THE PERIOD IT BECAME DUE, ACTUAL RECEIPT IS NOT IMPORTANT.

FROM THE ABOVE EXAMPLES WE CAN MAKE IT CLEAR THAT ACTUAL RECEIPT OR PAYMENT OF CASH IS NOT IMPORTANT TO RECORD A TRANSACTION. THE TRANSACTION WILL BE RECORDED IN THAT PERIOD TO WHICH IT RELATES.

NOW IN THE GIVEN CASE IF WE RECORD THE SUBSCRIPTION RECEIVED FOR THE NEXT YEAR IN THE CURRENT YEAR INCOME STATEMENT THEN THE CURRENT PERIOD WILL SHOW A HIGHER PROFIT WHICH IS NOT CURRENT PERIOD INCOME RATHER FUTURE PERIOD INCOME AND VICE-VERSA.

SO THE UNIT MANGER SHOULD TAKE PROPER STEP TO RECORD THE SUBSCRIPTION RECEIVED IN ADVANCE IN THE YEAR WHICH IT RELATES RATHER IN THE YEAR OF RECEIPT.

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