Accounting - 1817 Words

We carefully examined and evaluated your financial statements in 2011 and identified several accounting policies and procedures inconsistent with U.S. GAAP. To better present the net income of your company, we provide the various recommendations for you to revalue your revenues and expenses in the following statements. Inappropriate revenue recognition criteria and policies (should change revenue recognition method or change the allowance estimation, 2011 allowance amount should be larger than 2010 due to larger AR and the difficulty that the artist been through) WAG records revenue from artwork sales when the Company and customer agree upon a selling price. This criterion does not conform to U.S. GAAP, which requires revenue be†¦show more content†¦Even though Stephen has certain art knowledge, but this measurement is still subjective and unreliable. According to U.S. GAAP, the designated market value should be the middle value of three amounts: replacement cost, net realizable value, and net realizable value less a normal profit margin. Hence, we suggest WAG re-evaluate the market value of the artworks using the designated market value method. * Ignorance of obsolescence of inventory WAG has extensive but aging inventory, which are probably to be obsolescent. WAG should consider to write off the inventory by the amount of the difference between their cost and market value. Therefore, there will be an impairment loss on inventory. WAG’s net income is overstated by ignoring the obsolescence of inventory. Improper expenses on 2011’s income statement The salary expense in 2011 is $29,500, which includes both Rob and Stephen’s annual salaries. Exhibit 1 tells us that Rob’s salary is $28,000(30,000-2,000). So we can calculate Stephen’s annual salary is only $1,500, which is quite unreasonable. There should not be such a huge difference between the two co-founders’ salaries. Therefore, WAG’s salary expense is understated and the net income is overstated. Salary should not be deducted because the deduction of the salary will lead to higher net income. Rob will get more compensation by 5 times of the net income. Dividend expense should appear on theShow MoreRelatedAccounting1024 Words   |  5 PagesQuestion 1:   * Proficient-level:   * There are several important functions performed in an organization, among which accounting is one of them. Define the accounting function and discuss how it differs from double-entry bookkeeping. 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