Bbean Essay

1736 Words Nov 29th, 2010 7 Pages
BBean Coffee Inc
BBean Coffee Inc

To: BBean’s Management
From: Accounting Advisor
Re: Accounting Policy

Before we can assess and begin treatment of issues, it is essential that we determine a context for the recommendations that will be made. BBean Coffee Inc. is a public company, and on this basis, will have to adhere to financial statements within the constraints of GAAP.

BBea Coffee Inc. initially sold larger franchises in urban locations, for which they recognized payment of $400,000 at the point of sale. They later increased their options by selling $300,000 franchises and offering a new method of payment. Franchise purchasers were now given the option to pay a deposit of $100,000 when signing the contract, and
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This, in turn, will attract shareholders to purchase more shares and also open doors for higher paid bonuses (as the management team will be paid in accordance to BBean’s net income and profitability). Management’s profit maximization objective may collide with the tax minimization goal because a higher net income means that a higher amount of tax must be paid. However, management’s profit maximization objective outweighs other objectives (like tax minimization) because of the positive impact on shareholders.

As the second set of users, shareholders (public investors) also value profit maximization and cash flow predictions for their interest in dividends. Their foremost objective will be stewardship. Thus, management performance evaluation and accurate financial recording a essential. Because their main source of income is in the form of dividends, liquidity is vital to ensure dividends are paid. Shareholders will keep a close eye on the performance evaluation BBean Coffee Inc., as well as management evaluation. This will relay information to shareholders of whether or not you, BBean Coffee Inc.’s management team, are effectively promoting the interest of the company.

The third user of BBean Coffee Inc.'s financial statements is the auditor. The auditor believes that BBean Coffee Inc. is overstating their assets if they continue to recognize revenue at the point of

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