Starbucks 's Financial Statements Follow The Accrual Accounting Model Rather Than Cash Basis Accounting

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MBAD 6211 10A Date Due: Sept 19, 2017 Group: Alyse Conn-Powers, John Early, Colette Kent, Kate Rhoad, Erica Jie Wang Case 2 (Starbucks - Part 2) h) i) Starbucks’ financial statements follow the accrual accounting model rather than cash-basis accounting. Companies who utilize cash-basis accounting methods only recognize revenue when received in cash and expenses are only recognized when paid in cash. Accrual accounting is the recognition of revenue when earned and the matching of expenses when incurred. Starbucks records revenue from 4 different sources: Company-operated stores, licensed stores, CPG foodservice and other revenues, and stored value cards. Starbucks gift card revenue specifically (identified as “Deferred revenue” on the…show more content…
The revenues for company-operated stores and licensed stores are identified separately on the Consolidated Statement of Earnings, but there is no way to identify how much deferred revenue one is generating over the other for management decisions. It is possible that the revenue earned in Licensed Stores Revenues includes gift card products. This would mean that both company-operated stores and licensed stores hold the deferred revenue liability and presents a challenge to management for recording revenue. Identifying how to de-recognize these gift card liabilities poses a significant challenge for management. Below is the breakout of how each revenue activity records revenue according to the notes section of the financial statements: Company-operated Stores Revenues: “revenue is recognized when payment is tendered at the point of sale.” Licensed Stores Revenues: “revenues consist of product sales to licensed stores and royalties and other fees paid by licenses to use the Starbucks brand. Sales of coffee, tea and related products are generally recognized upon shipment to licensees.” CPG, Foodservice & Other Revenues: “recognized when the product is received by the manufacturer or distributor. License

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