Accounting Principle Of Coca Cola Company

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Question 1 a. Matching principle requires that expenses suffered by a business must be charged to the income statement in the accounting period with the income to which it relates. In the case of Coca Cola company, they treated shipping and handling costs in moving finished products from the manufacturer to the sales distribution centers as Cost of Goods Sold but the same cost of transportation to customer are considered as selling, general and administrative expenses in the income statement (Coca-Cola Company, 2014, p. 81). On the other hand, prudence requires that accountants should not be bias in implementing policies and making estimates especially on assets, income, liability and expenses. They should be careful not to overstate or understate…show more content…
As stated in their recent annual report, Coca Cola Company recognize revenue when label is being transferred to their bottling partners, agents or other customers with a strong arrangement confirmation and agreed sales price (Coca-Cola Company, 2014, p. 41). The next concept to be discussed is materiality. This accounting concept entails the revelation of data which is believed to be material in accounting report. Excluding a very important information would disturb the user’s economic judgements. In addition, materiality depends on the size and nature of a business. For instance, Coca-Cola Company with a net assets worth of $92,023 million in 2014 (Coca-Cola Company, 2014, p. 75) will not be bothered to record $500 owed by their client as it is immaterial and will not affect the stakeholders in making business decisions. Lastly, substance over form makes the preparer of financial statements to develop business sense from the transactions and events and to present them in a manner that best reflects their true essence. To illustrate, when a company made a lease, the accountant needs to acknowledge this lease as an asset since they benefits from leasing it although they do not “own” the property. The case in point, Coca cola company do lease additional properties but it is not shown in the Statement of financial position and income statement because income from sublease…show more content…
The two concepts of income are different but highly related. In calculating the profit, accounting concept of income only deducts explicit costs i.e. those expenses that are normally involved in running the day to day operation of the business such as salary and rent from the revenue earned. On the other hand, economic concept of income includes both implicit and explicit costs. Implicit costs are the opportunity cost equal to what a firm must give up to make another commitment. To give a simple illustration, in one year it costs a firm $100, 000 to maintain a plant, but makes $1500, 000 revenue. The accounting profit will be $1400, 000 ($1500, 000 - $100, 000). But if the business made $500, 000 from renting its land, its economic profit will be $900, 000 ($1500, 000 - $ 100, 000 - $ 500, 000 as opportunity

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