http://www.cbc.ca/consumer/story/2009/10/25/waltdisney-babyeinstein-refunds.html
Summary
In response to a legal challenge about the educational value of the videos, a subsidiary of Walt Disney Co. is offering refunds to those who purchased Baby Einstein videos in the last five years. More than a decade ago, Baby Einstein DVDs appeared on the market scene as an educational tool that assisted babies up to the age of two in developing cognitive skills. In May 2006, the Boston-based advocacy group known as The Campaign for a Commercial-Free Childhood had a dispute with the U.S. Federal Trade Commission regarding the videos tricking consumers into believing that babies could learn words through them even though there was no evidence of scientific research. Eventually, they approached a group of Boston lawyers with their complaints and threatened a class-action lawsuit against Disney.
Connection
In the accounting books, when refunds are allowed, businesses use special “returns and allowances” accounts to record these transactions. For example, in this case, if the customer paid by credit, a credit invoice would be issued by Disney to the customer. In the journal, the “Sales Returns and Allowances” along with the PST and GST Payable accounts (if applicable) would be debited and the Accounts Receivable of the customer would be credited. However, not all businesses have a “Sales Returns and Allowances” accounts in their books if they are simply a small business. In this case, the Sales account is debited instead. When the customer pays cash for merchandise that has to be returned, the Bank account is credited instead of the Accounts Receivable because no credit invoices are issued.
Reflection
For businesses and consumers alike, offering refunds on merchandise is a good idea because it allows consumers to have a peace of mind when purchasing goods knowing that they could have a second chance to return it if they aren’t satisfied with it later. Generally, indecisive customers are more inclined to purchase goods this way and this also helps businesses in selling their goods quickly. However, the disadvantage to offering refunds is that customers might take advantage of the system and return goods often, raising the proportion of their returned sales as compared to their actual net sales. While parents are shocked that the Baby Einstein DVDs did not work as expected, I think there are other options for parents, such as spending quality time with their child instead of passively allowing them to watch baby television.
Wednesday, January 13, 2010
Tuesday, October 13, 2009
Employee Theft and its Impact on Retailers
http://www.mdd.net/us/news/forensic_insight_january_2009_employee_theft_and_its_impact_on_retailers.php?p
Summary
Even though the end of the economic downturn is imminent, the scars it has created have not completely healed yet, and many have turned to illegal acts such as shoplifting to escape their difficult financial situation. In particular, retail losses due to shrink has reached $40.5 billion in 2006, of which 47% was caused by employee theft, according to the National Retail Security Survey. Although the loss of expensive items in the inventory are likely recorded, it may take a business a long period of time to detect the losses of an inexpensive item. Retail shrinkage can be caused by inventory losses from employee theft, shoplifting, organized retail crime, administrative error, and vendor fraud.
Connection
In Chapter 11, we learned that a physical inventory is taken to determine the value of the inventory currently in stock. Subtracting that amount from the beginning inventory and the cost of merchandise purchased gives the cost of goods sold. However, when shrinkage occurs, the physical inventory count and the count recorded in the company’s financial records would show a discrepancy. As a result, the merchandise is no longer on hand but stolen, lost, or broken and would be categorized as “cost of goods sold”, even though the sales revenue would not increase, resulting in a lower gross profit. Had the merchandise not been stolen, the amount of the gross profit would be higher due to the increase of sales, since the amount of ending inventory is the same in both cases.
Reflection
Although a child stealing a chocolate bar may not seem like a huge, small discrepancies could add up and employee theft and shoplifting should be prevented. Often we overlook how easy it is for employee theft to occur since they are in charge of processing the transaction and it is convenient to purposely undercharge a customer by not scanning an item. As well, many consumers may accidentally shoplift by forgetting to put small items from the bottom of their cart onto the conveyor belts. Unlike in other places where the consumer pays for the breakage, here the business is responsible for covering the cost of replacing the item. Unless security is added to reduce inventory losses, the reality of retail shrinkage would remain a burden for many businesses.
Summary
Even though the end of the economic downturn is imminent, the scars it has created have not completely healed yet, and many have turned to illegal acts such as shoplifting to escape their difficult financial situation. In particular, retail losses due to shrink has reached $40.5 billion in 2006, of which 47% was caused by employee theft, according to the National Retail Security Survey. Although the loss of expensive items in the inventory are likely recorded, it may take a business a long period of time to detect the losses of an inexpensive item. Retail shrinkage can be caused by inventory losses from employee theft, shoplifting, organized retail crime, administrative error, and vendor fraud.
Connection
In Chapter 11, we learned that a physical inventory is taken to determine the value of the inventory currently in stock. Subtracting that amount from the beginning inventory and the cost of merchandise purchased gives the cost of goods sold. However, when shrinkage occurs, the physical inventory count and the count recorded in the company’s financial records would show a discrepancy. As a result, the merchandise is no longer on hand but stolen, lost, or broken and would be categorized as “cost of goods sold”, even though the sales revenue would not increase, resulting in a lower gross profit. Had the merchandise not been stolen, the amount of the gross profit would be higher due to the increase of sales, since the amount of ending inventory is the same in both cases.
Reflection
Although a child stealing a chocolate bar may not seem like a huge, small discrepancies could add up and employee theft and shoplifting should be prevented. Often we overlook how easy it is for employee theft to occur since they are in charge of processing the transaction and it is convenient to purposely undercharge a customer by not scanning an item. As well, many consumers may accidentally shoplift by forgetting to put small items from the bottom of their cart onto the conveyor belts. Unlike in other places where the consumer pays for the breakage, here the business is responsible for covering the cost of replacing the item. Unless security is added to reduce inventory losses, the reality of retail shrinkage would remain a burden for many businesses.
Wednesday, September 16, 2009
U.S. credit card defaults up, signal consumer stress
Summary
It is hard to deny that credit cards are becoming more and more widely used, offering finances for buying anything from groceries to a new television set. However, this article reveals that even though consumers may be experiencing the ends of the recession, US credit card defaults are still constantly rising. In fact, the credit card debts from Bank of America Corp and Citigroup Inc. customers are at is peak since the beginning of the recession. Expecting a V-shaped recovery in the economy, customers become too confident in the state of the improving economy, leading to charge-off rates as high as 14.54% for the Bank of America. As a result of the rise in credit card losses, credit card companies have closed millions of accounts and cut down on lending limits and rewards.
Connection
In Accounting 11, we learned that buying and selling on credit is a convenient way to do business. By delaying payment for a short period of 30 days, purchasers are given the time to examine the goods or return them before paying for them. For example, when a company purchases supplies on credit, an account called the Accounts Payable is created under the name of the credit, the person or business the company owed money to. When credit card debts are paid on time, the process is smooth and convenient. However, when a company never receives the money owed to them, they have no choice but to write-off the account, making it no longer an asset value and assuming that the money most likely would not be returned, which results in a loss to the company.
Reflection
In recent years, I have noticed that more and more people are using credit cards instead of cash as a form of payment due to its convenience. Programs such as “do not pay until” a certain date are introduced, allowing us to walk away without paying a cent for our purchase. As if the idea of a credit card wasn’t luring enough, rewards attached to various cards spark customers’ interests. To encourage consumers to pay for their credit card bills early or on time, credit card companies are introducing interest rates for those who pay for the bill at a later date than scheduled. Similar to how businesses would sell to reliable companies with a stable financial position, I think it would be wise for credit card companies to review the consumer’s financial position as well, to ensure that the consumer has the ability to pay back the company and thus reducing the number of credit card defaults.
http://www.vancouversun.com/business/fp/credit+card+defaults+signal+consumer+stress/1996730/story.html
It is hard to deny that credit cards are becoming more and more widely used, offering finances for buying anything from groceries to a new television set. However, this article reveals that even though consumers may be experiencing the ends of the recession, US credit card defaults are still constantly rising. In fact, the credit card debts from Bank of America Corp and Citigroup Inc. customers are at is peak since the beginning of the recession. Expecting a V-shaped recovery in the economy, customers become too confident in the state of the improving economy, leading to charge-off rates as high as 14.54% for the Bank of America. As a result of the rise in credit card losses, credit card companies have closed millions of accounts and cut down on lending limits and rewards.
Connection
In Accounting 11, we learned that buying and selling on credit is a convenient way to do business. By delaying payment for a short period of 30 days, purchasers are given the time to examine the goods or return them before paying for them. For example, when a company purchases supplies on credit, an account called the Accounts Payable is created under the name of the credit, the person or business the company owed money to. When credit card debts are paid on time, the process is smooth and convenient. However, when a company never receives the money owed to them, they have no choice but to write-off the account, making it no longer an asset value and assuming that the money most likely would not be returned, which results in a loss to the company.
Reflection
In recent years, I have noticed that more and more people are using credit cards instead of cash as a form of payment due to its convenience. Programs such as “do not pay until” a certain date are introduced, allowing us to walk away without paying a cent for our purchase. As if the idea of a credit card wasn’t luring enough, rewards attached to various cards spark customers’ interests. To encourage consumers to pay for their credit card bills early or on time, credit card companies are introducing interest rates for those who pay for the bill at a later date than scheduled. Similar to how businesses would sell to reliable companies with a stable financial position, I think it would be wise for credit card companies to review the consumer’s financial position as well, to ensure that the consumer has the ability to pay back the company and thus reducing the number of credit card defaults.
http://www.vancouversun.com/business/fp/credit+card+defaults+signal+consumer+stress/1996730/story.html
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