CH5: Cash Flow Statement

Source: http://dimemag.com/2009/12/nba-players-d-up-their-spending/

Summary:

This article talks about how high paid professional athletes becomes broke in just a few years after retirement. The salaries of NBA players are all in the millions range. That may seem like a lot of money, but after tax reductions, anyone would be amazed at how much money gets cut off of the paycheck. Many of the athletes that go broke are all big spenders so it's no wonder they get broke so quickly. According to this article, some of the things that these athletes blow their paychecks on are cars, which is a very poor investment decision due to the fact that its value depreciates. Another reason why the athletes don't have enough money left after retirement is that an athletes career is short-lived.

Connection:

This article relates to cash outflow and inflow. These athletes are aggressively spending large sums of cash without thinking of the consequences. The mounds of cash that the NBA players are dishing out to buy unnecessary products are going to waste to buy things like vehicles and electronics, which as stated in the article, are poor investments because they amortize. Also, due to taxes, the paycheck the players receive are deducted immensely, and not only that, since the careers of basketball players are short-lived, its hard to save up enough money that will support them for the rest of their lives. Most basketball players' cash inflow is inferior to the amount of their cash outflow.

Reflection:

I find this article quite shocking. Most people would expect superstars like professional athletes would have easy lives as a result of their financially enormous paychecks. It wouldn't be surprising that the athletes spend a large portion of that money sometimes, but its quite surprising to see that not even the money the athletes initially saved up could cover them for a few years in the future. This article has taught me that although you may seem to have a lot of money at hand initially, due to bad financial decisions, that money could go to waste quickly, rather than being put into good use: into good investments and savings.

CH4: Revenue Recognition

Source: http://www.dallasnews.com/sharedcontent/dws/bus/stories/DN-Cinemark_26bus.ART0.State.Edition1.3cea987.html

Summary:

Cinemark Inc. is now the second largest theater chain in United States and it reported that over the Winter holidays the attendance at the theater rose 21%. This increase customers went down in the history of the U.S. movie theater industry being a record setting quarter. Revenue earned from movie tickets increased by 34% and revenue earned through concession jumped 28%. Most of the these profits came from an increase in attendance of consumers, and the rest of it came from an increase in ticket costs. This caused an increase in the company's shares by 36 cents each.

Connection:

Upon reading this article I can see that the relationship between Cinemark's booming success and chapter 4 is revenue recognition. Cinemark is recording revenue and profits under GAAP principles. Also, although Cinemark may have huge potential for future profits, they aren't recording it down because that would be bad accounting practice and many people, especially shareholders, will be mislead into overestimating Cinemark's performance. One of such principles that Cinemark is following is the matching principle. This states that the expenses must be recorded in the same fiscal period as the revenue it was used to generate.

Reflection:

I believe that a major factor that attracted an increase in attendance at theaters is the improved technology that present day theaters now have installed. The new 3-D effects that were implemented in "Avatar" is an example of this. Consumers chose to buy tickets to watch the movie in IMAX instead of waiting for the DVD or Blue-ray version to be released. The 3-D technology may have increased expenses by a lot theaters, but the overall profit margin increases since it attracts more customers, and the 3-D glasses used to view the movie can be easily recyclable.

CH 3: Processing Data Through the Accounting System

Source: http://blog.friendseat.com/small-businesses-affected-by-haitian-earthquake/

Summary:

Port-au-Prince is one of the largest cities in Haiti, which was recently devastated by an earthquake. This city produces many of the fresh fruits, vegetables, and other resources that are necessary to businesses world-wide. Due to the destruction of the resources, Haiti cannot produce or ship any goods out to the market. Haiti is especially famous for its mangoes, but it's feared that the facilities producing these fruits have been destroyed as well. Since the mango season starts in April and ends in August, it is very possible that the facilities will not have been rebuilt by the end of the growing season. This is why many markets around the globe are looking for replacements.

Connection:

The connection between this article and chapter 3 is extraordinary events. Due to the earthquake that hit Haiti, many businesses have lost assets that could have been sold to generate profit. Since the losses of assets are caused by an infrequent event, we can assume that the companies that suffered this loss have recorded extraordinary events somewhere in their income statements. Although this depressing and disastrous event was nobody's fault, the Haiti companies that suffered also lost business opportunities. For example since Haiti can't fix their mango producing facilities in time, many regular customers that have purchased from them have turned their backs to Haiti and gone to find replacements.

Reflection:

I find it astonishing that companies who have purchased from Haiti for years and years have now turned a blind eye on them because of an incident that no one could have prevented. I believe what should have been done is instead of finding replacement suppliers, they should contribute funds and donations to get Haiti businesses back on track. This way, the mango producing facilities and other resources would be able to recover in time for the mango growing season.