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Milestone 7 - none
Cost Accounting (ACC550)
Southern New Hampshire University
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Adjusting Entries & Communication
Milestone Three Elisa Perry October 13, 2019 Southern New Hampshire University
Under the Generally Accepted Accounting Principles (GAAP), depreciation can be done using one of the four basic depreciation methods: straight-line, accelerated, activity, or group method (Depreciation under GAAP, n.). Every company in this Country has to deal with depreciation, adjusting the entries are also important to each company, like Walmart. How Walmart or any other company handles it, is based on the expenses on the balance sheet.
Walmart and all other retail companies mainly use the straight-line depreciation method. The straight-line depreciation allocates an equal amount of an asset’s cost to depreciation expense for each period of the asset’s service life (Wahlen, Jones, & Pagach, 2017). Determining the method is by subtracting the residual value of an asset from the asset’s cost, then dividing that number by the estimate life. Walmart mainly uses this method for it is simplicity and easy understanding.
Accounting journal entries that are transferred within the company’s accounting records to the accrual basis for accounting and is normally made by subsequent to issuing a company’s financial statements. Walmart also uses a prepaid expense, by the end of 2018 the company had over $44 million in prepaid expenses that included restricted cash and assets that are held for sale (2019 Annual Report, 2019). Walmart tends to use the prepaid expense because it has a goods for purchase for yearly usage for each year.
cost more than $4 million (Goelzer, 2005). The transition will cause Walmart to change the way it accounts for leases, taxes, contingencies and related disclosure, revenue recognition, and inventory. This leads to the second most obvious issue with the transition, Walmart’s cost flow assumptions. Under GAAP, Walmart uses the last-in, first-out (LIFO) cost flow assumption, but IFRS does not allow the use of LIFO, furthermore, IFRS requires the same cost flow assumption be used for all inventories of a similar nature, whereas no such requirement exists under GAAP (Wahlen, Jones, & Pagach, 2017). This has the potential to directly impact Walmart’s profit and tax liability.
The advantages of transitioning from GAAP to IFRS may seem as numerous as the disadvantages, but the weight each scenario carries is especially different. Mostly, the goal to move to one set of global accounting standards is supported by Walmart. It appears that IFRS has the potential to be the set of standards that Walmart and other companies abide by. As long as the various government and regulatory bodies adopt the same accounting principles, then the transition looks to be extremely beneficial. If not, then the lack of consistency in reporting standards will erase any of the aforementioned advantages.
To: Ashley Harper, Chief Executive Officer From: Elisa Perry, Controller Date: October 13, 2019 Re: XYZ Corporation Bankruptcy Filing
The purpose of this memorandum is to discuss the bankruptcy filing of XYZ Corporation, and how it affects Walmart’s Accounts Receivables. The type of bankruptcy filing will determine the detriment to Walmart’s accounts receivables, and how the company will move forward. Walmart currently has an accounts receivable balance of $6 billions of which two percent of that balance belongs to XYZ Corporation (Walmart Inc., 2019).
XYZ Corporation has filed Chapter 7 bankruptcy, meaning the company will be completely liquidated, and its assets will be distributed among its creditors. It is most likely that Walmart is the corporation’s largest creditor after the bank, therefore any funds received from the liquidation will go to the bank first with Walmart receiving anything that is left over. With that being said, it is unlikely that the sale of the company’s assets will generate enough money to completely clear out its account’s receivables balance, if Walmart receives any funds at all. The remedy to this issue is to write-off the bad debt using the allowance method, which is allowed under GAAP. The write-off will be done by journal entry with a debit to Allowance for Doubtful for $12 million and a credit to Accounts Receivable for the same amount. If the company recoups any of the $12 million from the bankruptcy courts, then an adjusting entry will be done by debiting Accounts Receivable and crediting Allowance for Doubtful Accounts for the amount of the payment to reverse that amount of the write-off. After that, we will debit Cash and credit Accounts Receivable for the same amount. Because Walmart has already allotted for doubtful accounts, this will not have as much of a negative effect on the balance sheet as it would have if no allowance had been made.
Milestone 7 - none
Course: Cost Accounting (ACC550)
University: Southern New Hampshire University
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