Can you please help me answer the following from the professor:

To improve their assignments on this topic, you should aim to provide a comprehensive analysis that not only identifies different accounting methods but also delves into their implications, regulatory compliance, and impacts on financial reporting. Here's how they can refine their work: Start with an overview that defines accounting methods and their significance in financial reporting. Highlight the primary methodscash basis and accrual basisand introduce the concept of inventory accounting methods (e.g., FIFO, LIFO, Average Cost). Clearly delineate between the cash basis and accrual basis accounting, explaining the fundamental differences in how revenues and expenses are recognized. Analyze how each method affects the presentation of the income statement and balance sheet. For instance, discuss how the accrual basis can show revenue before cash is received, impacting accounts receivable and the company's reported profitability. Describe different inventory accounting methods (FIFO, LIFO, Average Cost) and their basis in cost allocation for inventory sold and remaining inventory. Discuss how the choice of inventory accounting method affects the cost of goods sold (COGS), gross profit, and inventory valuation on the balance sheet. Highlight the impact of these methods on financial ratios and tax liabilities. Expand on how the choice of accounting method affects revenue recognition, referencing specific standards like IFRS 15 or ASC 606 for accrual accounting. Explain the matching principle in accrual accounting and its role in aligning expenses with revenues they generate, impacting the reported income and expenses. Address the importance of selecting an accounting method that complies with legal requirements and accounting standards (GAAP, IFRS). Discuss the implications of changing accounting methods, including the need for restatement of prior financial statements and the effect on comparability over time. Analyze how different accounting methods can influence stakeholders' perception of a company's financial health and operational performance. Discuss how the choice of accounting method can impact business and investment decisions based on the financial information presented.

Paper that was submitted below:

Introduction

Urban Outfitters, Inc. is a lifestyle retail company operating clothing store. It operates through two reportable business segments: Retail and Wholesale. The Retail segment comprises Urban Outfitters, Anthropologie, Free People, Terrain, and BHLDN brands, selling merchandise directly through stores, catalogs, call centers, and websites. The Wholesale segment consists of the Free People division. It designs, develops, and markets young women's contemporary casual apparel. Urban Outfitters was founded by Richard A. Hayne and Scott A. Belair in 1970 and is headquartered in Philadelphia, PA. (Stanley, 2022)

Business Context

Urban Outfitters is a multinational American lifestyle retail corporation specializing in clothing, accessories, home goods, and various consumer products. It's known for its unique and eclectic merchandise and its target demographic, primarily young adults and teenagers. Urban Outfitters operates in a competitive retail landscape and has faced several challenges and opportunities in its business context.

Accounting Methods

Methods of Accounting Examples:

Accrual Accounting

Accrual accounting is an accounting method that records financial transactions when they occur rather than when cash is exchanged. It recognizes revenue and expenses when earned or incurred, regardless of when the money is received or paid. In accrual accounting, the fundamental principle is the matching principle, which aims to match revenues with the expenses incurred to generate those revenues in the same accounting period. (HBS, 2016)

Cash Accounting

Cash basis is a significant accounting method that recognizes revenues and expenses when cash is received or paid out. When transactions are recorded on a cash basis, they affect a company's books upon exchange of consideration; therefore, cash-based accounting is less accurate than accrual accounting in the short term. This contrasts accrual accounting, which recognizes income at the time the revenue is earned and records expenses when liabilities are incurred regardless of when cash is received or paid. (Kenton, 2020)

-With Urban Outfitters, we use Accrual accounting due to its accuracy in recognizing profit and income when revenue occurs, is published, and is earned.

-Also, the IRS requires companies with more than $25 million in annual gross sales for a continuous three tax years to use the accrual method.

The accounting method a company uses can significantly affect its financial statements. On an accrual basis, revenues are recognized when earned, and expenses are recorded when incurred, regardless of cash flow. It provides a more accurate long-term financial picture.

Impact on Financial Statements:

Income Statement: Revenues and expenses are equal to when they happened, providing a more accurate depiction of profitability. This helps stakeholders understand the company's actual performance.

Balance Sheet: Assets and liabilities are reported at their fair market values. Accounts receivable and accounts payable are recognized to understand better where the company stands financially.

Financial Statements

Financial Statement Basics

Income Statement: An income statement, also known as a profit and loss statement (P&L), is a financial statement that summarizes a company's revenues, expenses, and profits (or losses) over a specific period, typically a fiscal quarter or year. (Fernando, 2024) It is one of the three primary financial statements businesses and investors use to assess a company's financial performance and overall health. Here's a look at Urban Outfitters' income statement for the fiscal years 2013 through 2017. It shows a steady increase in their gross profit and net sales for the five years listed in the statement.

Figure 1.1, Income statement for fiscal years 2013-2017, (Sec.gov n.d.)

Balance Sheets

A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific time, typically at the end of an accounting period, such as a quarter or a fiscal year. It is one of the critical components of a company's financial statements, alongside the income statement (profit and loss statement) and cash flow statement. (Sanjay, 2024)

Figure 1.2, Consolidated balance sheet, for fiscal years 2016-2017, (Sec.gov n.d.)

Costs:

Advertising costs:

Advertising costs for Urban Outfitters are reported as prepaid expenses were $3,724 and $2,146 as of January 31, 2016 and 2015, respectively. Advertising expenses were $114,104, $103,882, and $91,615 for fiscal 2016, 2015, and 2014, respectively. (Sec. gov,n.d.)

Advertising and web creative expenses are included in the "Selling, general and administrative expenses line" in the Consolidated Statements of Income for the years 2015-2017. (Figure 1.3)

Web Development costs:

Web development costs are associated with designing, building, and maintaining a website or web application. These costs can vary significantly based on factors like the project's complexity, the features and functionality required, the expertise of the development team, and ongoing maintenance and hosting expenses. Per Sec. gov, Urban Outfitters regarding Website Development Costs, The Company capitalizes applicable costs incurred during the application and infrastructure development stage and expenses incurred during the planning and operating stage. During fiscal 2016, 2015, and 2014, the Company did not capitalize on any internally generated internal-use software development costs because substantially all costs were incurred

during the planning and operating stages, and expenses incurred during the application and infrastructure development stage were not material. (Sec.gov, n.d.)

Store opening costs:

Store opening, startup, or initial costs refer to the expenses associated with establishing and launching a new retail store or business location. These costs are incurred before the store begins its regular operations and typically cover a range of expenses necessary to prepare the store for business.

The Company expenses all store opening and organization costs as incurred, including travel, training, recruiting, salaries, and other operating costs, which are included in "Selling, general and administrative expenses" in the Consolidated Statements of Income (Sec.gov, FORM 10-K, n.d.).

Figure 1.3, Consolidated Income statement for fiscal years 2015-2017 (Sec.gov, n.d.)

Capitalizing Vs. Expensing

Characterizations

Capitalizing and expensing are two different accounting methods used to handle the costs associated with acquiring, improving, or maintaining assets in a business.

Capitalizing:

When capitalized, a cost is recorded as an asset on the balance sheet rather than as an immediate expense on the income statement.

Capitalized costs are typically associated with long-term assets.

These costs are amortized or depreciated over their useful life, which spreads the expense over multiple accounting periods.

Capitalizing expenses can lead to higher reported assets and lower costs reported in the short term.

Expensing:

When an expense is recorded immediately, it is recognized on the income statement when it is incurred. It does not appear as an asset on the balance sheet.

Expensing is typically used for costs that do not have a long-term benefit or are considered routine operating expenses.

Expensed items reduce the company's net income for the current period and do not impact the balance sheet.

When to Use:

The choice between capitalizing and expensing depends on various factors, including accounting standards, the nature of the expense, and the company's financial goals. Some key considerations include:

Limitations on net income are as follows:

• Capitalizing: higher profit in the early stage and lower profit in the long term.
• Expensing: Reduced Profitability in short-term and initial periods, Higher Profitability in Later/long Periods

Our preference is expensing in order to give the company high equity and increase profit. Expensing shows assets as well as liabilities on the income statement. Also, Expensing assists greatly in increasing profit in the long run.

References

Fernando, J (2024, June), Profit and Loss Statement Meaning, Importance, Types, and Examples

https://www.investopedia.com/terms/p/plstatement.asp

HBS (2016, September). WHAT IS ACCRUAL ACCOUNTING?

https://online.hbs.edu/blog/post/what-is-accrual-accounting

Kenton, W. (2020, December), Cash Basis Accounting: Definition, Example, Vs. Accrual

https://www.investopedia.com/terms/c/cashbasis.asp

Sanjay, V. (2024, April), Balance Sheet vs. Income Statement: What's the Difference?

https://www.businessnewsdaily.com/16513-balance-sheet-vs-income-statement.html

Sec.gov (n.d), Figure 1.1-3, Statements for fiscal years 2013-2017

https://www.sec.gov/Archives/edgar/data/912615/000119312517108506/d286750d10k.html

Stanley, M (2022), Urban Outfitters

https://www.forbes.com/companies/urban-outfitters/?sh=65846cb22acb