Significant Accounting Policies|My homework helper

Posted: March 15th, 2023

The Discussion for this week will once again give you the opportunity to analyze a public company’s financial statements. Discuss with your colleagues the cost flow assumptions presented in these statements. Why did the company choose these assumptions? What types of inventories did they report?

Locate the annual financial report you selected in Week 1. Look at the balance sheet and the notes to the financial statements (particularly Note 1).

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With these thoughts in mind:

 

Post at least 200 words addressing the following points:

  • What cost flow assumption did the report use? Why do you think the company selected this cost flow assumption?
  • How many different types of inventories did the company report on its balance sheet? Identify those inventory categories.
  • Would the company be required to account for its inventories differently if it were reporting under IFRS? Why or why not?Significant Accounting Policies

     

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    Significant accounting policies

    Accounting policies guide the company and its stakeholders on how transactions and other events should be accounted for in the financial statements. These policies ensure accuracy and consistency in the company’s financial reporting (Schroeder et al., 2022). Companies must carefully manage their receivables to ensure they receive the money they owe them promptly. A company’s accounting policies can help manage its receivables effectively.

    Burlington Stores Inc. is a publicly traded company in the United States, and as such, it is required to file periodic reports with the Securities and Exchange Commission (SEC). The most comprehensive report is the annual report on Form 10-K, which includes the company’s financial statements and notes to those statements (Burlington Stores, n.d). In this report, Burlington Stores Inc. provides information about how it values its receivables, determines the balance in the allowance for doubtful accounts, and whether the allowance for doubtful accounts remains constant as a percentage of gross receivables for all the years presented.

    According to the company’s 10-K filing, receivables are stated at net realizable value, the estimated amount that will be collected in cash. Receivables are stated net of an allowance for doubtful accounts (Burlington Stores, n.d). Similarly, the allowance is based on management’s estimates of amounts that may not be collected. This estimate is based on historical collection experience, aging of accounts receivable, customer creditworthiness, and other factors (Carey, 2021). The balance in the allowance for doubtful accounts was determined by management’s estimates of the amount that may not be collected.

    The allowance for doubtful accounts is determined based on historical collection experience, current economic conditions, and accounts receivable aging. Burlington Stores Inc. allows doubtful accounts to cover estimated losses (Burlington Stores, n.d). The note to the financial statements indicates that the allowance for doubtful accounts did not remain constant as a percentage of gross receivables for all the years presented.

    The percentage increased from 0.6% in 2019 to 1.1% in 2020. This increase reflects the impact of the COVID-19 pandemic on the company’s business and the resulting economic uncertainty. Moreover, the note to the financial statements does not provide information about the number of receivables written off (Burlington Stores, n.d). However, it states that the company maintains procedures to monitor and assess the collectability of its accounts receivable and writes off uncollectible accounts when they are identified.

    The valuation of receivables and the management of collections are important factors for any company that sells goods or services on credit. Companies typically use historical data and current economic conditions to estimate the allowance for doubtful accounts and adjust the value of their receivables accordingly. The effectiveness of a company’s receivables management can be assessed by analyzing the number of receivables written off over time.

     

    References

    (n.d.). Burlington Stores, Inc. https://www.burlingtoninvestors.com/

    Carey, A. (2021). Burlington Stores Inc. https://scholarworks.merrimack.edu/honors_capstones/55/

    Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2022). Financial accounting theory and analysis: text and cases. John Wiley & Sons. https://books.google.co.ke/books?hl=en&lr=&id=8F6LEAAAQBAJ&oi=fnd&pg=PA2&dq=Accounting+policies+provide+guidance+to+the+company+&ots=DwTKFC1NHP&sig=16tl3ClIUHowT3_5ZtjPpRTCO9g&redir_esc=y#v=onepage&q=Accounting%20policies%20provide%20guidance%20to%20the%20company&f=false

SOLUTION

One common cost flow assumption used in financial reporting is the First-In-First-Out (FIFO) method. Under this method, the company assumes that the first items purchased or produced are also the first ones sold. This means that the cost of the oldest inventory is used to calculate the cost of goods sold, while the cost of the newest inventory is used to calculate the ending inventory balance. The company may choose this method to reflect the actual physical flow of inventory, and it may be useful in industries where inventory turnover is high, such as retail.

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