Notes to Financial Statements

Topics: Income statement, Revenue, Generally Accepted Accounting Principles Pages: 7 (1475 words) Published: July 14, 2013
Keller Graduate School of Management
ACCT 551 Course Project
Notes to Financial Statements

Table of Contents

I. CoverPage 1
II. Table of ContentsPage 2
III. Tropical Pool Cleaning Income StatementPage 3
IV. Tropical Pool Cleaning Balance SheetPage 4
V. Notes to Financial Statements Page 5
VI. Reference Page 9

Notes to Consolidated Financial Statements



1. Nature of Operations
Tropical Pool Cleaning Corporation (henceforth refer to as the “Company,” “we” or “us”) provides pool cleaning, maintenance and repair services to individuals and corporations nationwide. Our headquarters are in New York City however we maintain a significant presence in Florida, California and Texas.

2. Accounting Principles and Presentation
The Consolidated Financial Statements have been prepared in agreement with the United States of America GAAP regulations.

3. Use of Estimates
In the preparation of financial statements estimates by managers are sometimes necessary. These assumptions are made using available data pertaining to the company’s assets, liabilities, revenue and expenses. Other areas where estimation may occur are future tax liability projections, fair value estimation and impairment calculation on investments.

4. Revenue Recognition
Revenue is recognized when a service contract is signed, service is rendered, or evidence of an arrangement exists and collectability is probable. Revenues indicated are net of taxes collected for federal and state purposes and thus surrendered to the corresponding agency. Certain agreements span various years or seasons thus their revenue is recorded as unearned service revenue and is recognized over the terms of the service contract. Revenue from consultations is recognized as the service is preformed and is generally based on a predetermined hourly rate.

5. Cost of Sales
Cost of revenue is primarily comprised of acquiring parts from manufactures used in the maintenance of pool pumps, filters etc. These cost also include the cost to deliver items to customers, inbound freight costs, internal transfer costs, storage facility costs and other shipping and handling activities.

6. Selling, General and Administrative Expense
Selling, general and administrative expenses are primarily comprised of wage expenses, selling expenses, administrative and other direct overhead costs, depreciation and amortization expense on assets and other miscellaneous operating items. Marketing costs are charged to expense as incurred and include nationwide television, print, radio, Internet and in-store advertising expenses and were $35,000 in 2012 and $8,000 in 2011. Other expenses include costs associated with consumer promotions, sales pamphlets, as well as discount coupons, which are recorded as a decrease to net sales revenue.

7. Prepaid expense
Prepaid expenses mainly consist of insurance, rent, and supplies for our multiple locations. As the assets are depleted they are charge to the appropriate expense account. 8. Income tax
Income tax provisions have been made based on the US effective tax rate for 2012 and 2011, which is approximately 39%. In fiscal years 2012 and 2011, our U.S. income before income taxes was $377,617 and $149,306 respectively.

9. Investments
We current hold available for sale and debt securities. Investments that are held less than 12 months are accounted for in current assets and are trading securities. All marketable securities are represented at fair value. Impairment evaluations are preformed semi-annually. If the carrying value exceeds the fair value for 12 consecutive months we determine that the instrument is impaired. If impairment exists then it is recorded in other comprehensive income section of the Income Statement. If there is an unrealized gain or loss it is attributed to...
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