MBA FPX 5010 Assessment 1 Training Manual-Accounting Tools and Practices

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Capella University

MBA-FPX5010 Accounting Methods for Leaders

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Date

Training Manual-Accounting Tools and Practices

Urban Outfitters, Inc., founded in 1970 and incorporated in Pennsylvania in 1976, is a retailer specializing in clothing and accessories (Urban Outfitters, 2021). Its primary business involves the retail and wholesale sale of consumer products through various channels, including physical stores, websites, catalogs, and mobile applications (Urban Outfitters, 2021). Urban Outfitters was the first brand in the URBN company portfolio, which also includes Free People, Anthropologie, Terrain, BHLDN, Menus & Venues, and Nuuly (Urban Outfitters, 2021). Between 2015 and 2017, the portfolio expanded from 546 to 606 stores, primarily in the United States (515 stores in 2017, up from 464 in 2015) (U.S. Securities and Exchange Commission, 2018). The company also operates in Europe and Canada, with 54 stores in Europe and 37 in Canada by 2017, up from 50 and 32 stores in 2015, respectively (U.S. Securities and Exchange Commission, 2018). The Wholesale segment distributed apparel to about 1,900 department and specialty retailers worldwide in 2017 (U.S. Securities and Exchange Commission, 2018).

Financial Statements

Accounting, often called the language of business, is essential for understanding economic activities and making informed decisions (Marshall, McManus, & Viele, 2020). Financial statements provide insight into an entity’s financial position at a specific time, operational results over a period, and cash flow activities during that period (Marshall, McManus, & Viele, 2020). These statements are designed for stakeholders who are not directly involved in the entity’s daily financial operations (Marshall, McManus, & Viele, 2020). They also use historical data to help forecast future performance (Marshall, McManus, & Viele, 2020).

Notes to Financial Statements

Accompanying the financial statements, notes provide critical information about a company’s financial resources, obligations, stakeholder interests, and operations (Marshall, McManus, & Viele, 2020). These notes elaborate on the company, key financial statement details, and important unrecognized information, including the primary accounting principles used (Bookstime, 2020). Together, financial statements and their notes offer a more comprehensive view of the company’s financial situation.

The notes to Urban Outfitters’ financial statements include a summary of significant accounting practices, such as its fiscal year ending on January 31 each year. For example, advertising costs and how they are managed are detailed in the notes.

Advertising

Urban Outfitters’ notes to the financial statements outline the criteria for expensing and capitalizing advertising costs, specifying where these costs appear in the financial statements. Advertising costs are expensed as incurred, except for direct-to-consumer advertising, which is capitalized and amortized over its expected period of future benefit (U.S. Securities and Exchange Commission, 2018). The expenses primarily relate to web marketing, catalog production, and other marketing activities (U.S. Securities and Exchange Commission, 2018). Catalog-related costs are amortized over the response period, determined based on historical customer response trends (U.S. Securities and Exchange Commission, 2018). Amortization rates are reviewed regularly and adjusted as necessary if response rates differ significantly from predictions. The typical amortization period is one to two months, and advertising costs with no expected future benefit are expensed immediately (U.S. Securities and Exchange Commission, 2018).

Detailed information on advertising costs includes:

Prepaid advertising costs reported under “Prepaid expenses and other current assets” in the Consolidated Balance Sheets were (U.S. Securities and Exchange Commission, 2018):
- $2,087 as of January 31, 2017
- $3,724 as of January 31, 2016
- $2,146 as of January 31, 2015
Advertising expenses included in “Selling, general and administrative expenses” in the Consolidated Statements of Income were (U.S. Securities and Exchange Commission, 2018):
- $127,159 for fiscal 2017
- $114,104 for fiscal 2016
- $103,882 for fiscal 2015
Web creative expenses included in “Selling, general and administrative expenses” in the Consolidated Statements of Income were (U.S. Securities and Exchange Commission, 2018):
- $31,237 for fiscal 2017
- $32,003 for fiscal 2016
- $27,183 for fiscal 2015

The notes to the financial statements specify where each advertising cost can be found, indicating that prepaid advertising costs are included under “Prepaid expenses and other current assets” on the balance sheet. This classification shows that these expenses are capitalized and spread over a longer period (Bragg, 2020).

Advertising and web expenses listed under “Selling, general and administrative expenses” in the income statement are expensed rather than capitalized, as they are not tied to longer-term marketing campaigns (Bragg, 2020). The different methods of expensing and capitalizing were applied correctly according to when the expenditures occurred and their intended duration of benefit.

Conclusion

This guide serves to understand financial statements, notes to financial statements, and advertising expenditures for Urban Outfitters, which can be applied to broader financial analysis.

References

Bookstime. (2020, October 30). Notes to financial statements: Meaning and definition. Retrieved from https://www.bookstime.com/articles/notes-to-financial-statements

Bragg, S. (2020, October 9). The difference between expensing and capitalizing. Retrieved from https://www.accountingtools.com/articles/2020/10/9/expensing-vs-capitalizing

Marshall, D., McManus, W., & Viele, D. (2020). Accounting: What the numbers mean (12th ed.). New York, NY: McGraw-Hill.