Accounting

1)

MoviesPlus, Inc. is in its third year of business. The company offers DVD rental to online customers for a fixed monthly fee. For $20 per month, a customer receives three DVDs each month, one at a time as the previous one is returned. No matter how many DVDs a customer uses (up to three), the fee is fixed at $20 per month. Customers sign a contract for a year, so MoviesPlus recognizes sales revenue of $240 each time a customer signs up for the service. The owner of MoviesPlus, Bob Colbert, has heard about GAAP, but he does not see any reason to follow these accounting principles. Although MoviesPlus is not publicly traded, Bob does put the company- financial statements on the company- Web page for customers to see. Explain how MoviesPlus would account for its revenue if it did follow GAAP. Explain to Bob Colbert why he should use GAAP, and describe why his financial statements may now be misleading. Do you see this as an ethical issue? Explain. 

2)

You are a business consultant providing information and advice to future small business owners. One difficult concept for your clients to understand is the concept of economic substance. Accountants do not base the recognition of revenues and expenses on the income statement on the collection of cash or on the disbursement of cash. Revenues and expenses are recognized when the economic substance of the transaction has taken place. Create a PowerPoint presentation for a seminar aimed at future business owners. Explain the meaning and importance of economic substance and how it relates to the financial statements