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

The cash basis of accounting records revenues when cash is received and expenses when cash is paid out. The accrual basis of accounting records revenues when they are earned and expenses when resources are used.

Revenues are recognized in a net basis and only commissions they retain from each sale are reflected under the company’s financial statements.

3. The primary assets that Starbucks holds are outlined on the balance sheet. The biggest category of asset is with plant, property and equipment. The notes to

The Starbucks business commerce is trade, and the products include coffee drinks and coffee related products. Since the company has thousands of branches throughout the world, it is very convenient to “run in and out” and grab a coffee. Starbucks has a very loyal customer base and high profit margins. Through the loyal customer base and always being

2. Empire Company Limited recognize their revenue using point-of-sale and sale of product. Points of sale recognizes revenues from customers through corporate stores operated by the company, consolidated SEs and

The determinants of Starbucks profitability over time are variable costs and fixed costs. “A variable cost is a cost that change in direct proportion to a change in the level of activity (dict). Variable costs for Starbucks would include labor, coffee beans, dairy, and plastic products. A fixed cost is indirect costs of business expenses that remain unchanged (dict). Fixed costs for Starbucks include rent, taxes, and insurance as well as advertising. In the figure below (fig 1) we have Starbucks financial data in millions for the year of 2015. This includes their operating expenses, net revenues, such as company-operated stores, licensed stores, CPG, food service. It also includes their total net revenues and their balance sheet. As we can see “Operating costs dropped in the fiscal year

Under GAAP, it is possible to use cash-basis or accrual basis accounting for revenue recognition. Under cash basis, revenue is recognized with payment is received. Under accrual basis, revenue is recognized when it becomes economically significant. GAAP has specific requirements for various industries on when an event qualifies to be recognized as revenue.

The notes to the financial statements can reveal a lot about the details of the line item in question. It is often said that to fully understand financial statements, one must read the notes. The company that I have selected is Starbucks, and to that end their financial statements are available online at MSN Moneycentral. To read the notes, however, I will need the annual report.

The major distinction between the accrual and the cash basis of accounting is when revenue and expenses are recognized. When the cash method is used, revenue is recorded when money is received. Expenses are recorded only when money is paid. The Accrual method accounts for revenue when it is earned. Expenses for goods and services are recorded when they are incurred. The

In this assignment, a savvy financial analyst researching companies in which to invest a U.S. publically-traded company that would be a good investment was chosen. After a lengthy search, a company that my family is unduly familiar with, Starbucks, was chosen and in the following pages a financial analysis will be described.

Starbucks’ financial position can be figured out by studying their balance sheet. A financial item that can be found on the balance sheet is accounts receivable. Accounts receivable refers to money owed to a organization by its borrowers. Horizontal analysis can be used to assess an item on the balance sheet. Starbucks’ accounts receivable increased from $561.4 million in 2013, to $631 million in 2014. That is a 12% increase in just a year. Accounts receivable is categorized as an asset on the balance sheet. In 2013 the accounts receivable was 4.8% of total assets. In 2014, the company saw a 5.8% increase in their total assets. Overall, the accounts receivable jumped up by 12% in 2014. Starbucks allowance for uncollectable receivables is calculated based on histroalical experience, credit history, and application of the specific identification method. Uncollectable receivables are not available on Starbucks balance sheet. There are however, fixed aseets on the balance sheet such as plant, equipment, and property.

Starbucks generates strong cash flows has solid liquidity. The company executes rigorous cost cutting initiatives to improve its bottom-line. However, throughout fiscal 2008, Starbucks continued to experience declining revenue, particularly in US operation. The decline is largely attributed to lower customer traffic.

Starbucks does not have a lot of long-term debt. There was a point in the mid-2000s where Starbucks was struggling, closing stores and seeing reduced profitability. In August of 2007 the company made its first (and to this point only) debt issue. The issue was for $550 million at 6.25% on a 10-year issue (Trent, 2007). This debt remains on the company's books today, as $549.5 million on the balance sheet in long-term debt.

Accrual accounting is an accounting method that is utilized to size the performance and of a company by recognizing circumstances regardless of when cash transactions occur. They are documented by matching revenues to expenses at the time in which the transaction occurs rather than when a payment is processed. This method allows the current cash credits and debits to be combined with future expected cash flows to give a more accurate picture of a company 's current financial state. It is ideal to use this method of accounting if an organization has a revenue of more than five million per year. While the accrual method shows the flow of business income and debts more accurately, the downside to this method of accounting is that financial advisers may be blindsided as to what cash reserves are available, which could ultimately result in some serious cash flow obstacles. A common example that I have seen used which helps me understand is when your income ledger may show thousands of dollars in sales, while in reality your bank account is empty because your customers haven 't paid you yet. Cash Basis accounting is when revenues are documented when cash is received and expenses are recognized when paid. The cash basis of accounting is usually utilized by small companies with a revenue of less than one million annually. The cash method provides a more accurate picture of how much actual cash your business has. Cash basis accounting is allowed for tax purposes only for smaller

These partnerships have led to a meaningful increase in profits. Licensed stores, another type of partner for Starbucks, make up a greater portion of the corporation than company-operated stores. According to Starbucks’ Fiscal 2009 Annual Report, licensed stores make up 39% of total Starbucks stores in the US and 62% of Starbucks stores worldwide.