Excello Telecommuncations - 1587 Words

RUNNING HEAD: EXCELLO TELECOMMUNICATIONS CASE Excello Telecommunications Case Kevin C ETH/376 February 10, 2014 Excello Telecommunications Case The year is quickly ending for Excello Telecommunications, and they are trying to maximize earnings for the company. With increased competition from foreign companies, Excello meeting its financial estimates are looking bleak. Failure to meet earnings expectations can reduce the availability of bonuses, stock options and could lessen the value of the company. Because of the threat in not meeting estimated earnings, the company’s CFO Terry Reed has a plan to make one last effort to meet company goals. Terry Reed has knowledge about a sale of $1.2 million to a†¦show more content†¦Section 401 forces companies the discloser of periodic reports from the company. Section 807 describes a clear definition on the criminal penalties for executives who break the law. Excello GAAP Accounting Excello accounting standards in the case study shows that the CFO wanted to make a decision based on an operating decision going against accounting standards. GAAP principles must be followed by Excello when preparing financial statements. When the company releases the financial statements, it must be in compliance with GAAP. With that in mind, the accounting department must also comply with GAAP principles when the $1.2 million sale is posted. Excello must follow revenue recognition rules when the sale is recognized by the company. Revenues resulting from selling inventory must be recognized at the date of the sale, often viewed under date of delivery. If the company used accrual basis of accounting, the revenues are recognized when they are earned, and expenses are matched with the revenues generated by the sale. So for Excello, the sale cannot be reported in 2010 because the sale would occur in 2011. Because Excello still possess the goods at the end of the year, the sa le recognition cannot occur. The financial statements have to reflect the true accounting activities for 2010, so the reports are transparent, reliable and consistent. If Excello went ahead and reported the revenue in 2010, the report will not be truthful and unreliable for