LATEST BLOG UPDATED...to clarify accounting 101 pr
Post# of 7452
Posted On: 06/09/2016 11:27:05 AM
LATEST BLOG UPDATED...to clarify accounting 101 principles for those lacking that type of knowledge
1). NOW SHIPPING TO WALMART - "Dark Awakening" - "Brutal Colors" - "Salvation" - "Union Bound" - "Linda Vista Project." It's an understatement to note that any single supplier - esepcially an independent distributor - would have successfully placed FIVE titles in Walmart at one time. This bodes very well for Q4 cash flows. Someone asked, how does this impact Q2 / Q3 revenues? The answer is that the Company is now working on CASH-BASIS accounting rather than accrual accounting. The prior policy of "accruing" sales as they become activated (rather than when they are paid), has created some issues of confusion in reconciling the Company's A.R. vs Available Cash (as well as the dual issue of cash-basis tax returns vs accrual basis pubco filings). As previously disclosed, contracts such as NETFLIX and SHOWTIME are paid over the length of the licensing term. So for HHSE to book three-years of receivables (against Netflix, for instance) during the specific revenue quarter that the sale was activated does not conform to the cash-flow from the contract. Yes, booking a contract "immediately" is allowed under GAAP rules, because it's essentially "credit terms" as opposed to executory performance issues. It was decided that cash-basis accounting would reduce our work load and simplify future reporting and auditing requirements. TO BE CLEAR, for those of you who have not had the benefit of multiple meetings with our auditors, HHSE is now accounting for consignment sales shipments on a CASH basis as described above. We are also accounting for long-term, executory contacts on a CASH basis now. Why? Because until HHSE actually receives payment for shipments to retailers (such as Walmart), there is a contingent possibility that shipments made to them might be returned as unsold product. So how do you account for shipments that might be returned? Do you "book the shipment as a sale" immediately and then "estimate" a projected returns exposure? What happens if LESS units are returned? What happens if MORE units are returned? Does the company need to retroactively re-state the prior revenue reportings to reflect the ultimate difference? And if retailers like Walmart are empowered to return unsold DVD merchandise, does that mean that HHSE should keep the INVENTORY of such shipments on the balance sheet as an asset, until it's actually purchased and no longer subject to potential return? Obviously, many items must continue to be accrued on our reporting - how could "payables" be accounted for on a cash basis? They are debt, not yet paid... (one would THINK that accrual of certain items goes without explanation?). No corporation can adhere to GAAP without some elements of accrual activity. But with respect to the recognition of sales - especially consignment DVD shipments and long-term contracts - the Company's decision to recognize these "as paid" (cash-basis recognition) is a wise policy that conforms to other GAAP elective requirements.
1). NOW SHIPPING TO WALMART - "Dark Awakening" - "Brutal Colors" - "Salvation" - "Union Bound" - "Linda Vista Project." It's an understatement to note that any single supplier - esepcially an independent distributor - would have successfully placed FIVE titles in Walmart at one time. This bodes very well for Q4 cash flows. Someone asked, how does this impact Q2 / Q3 revenues? The answer is that the Company is now working on CASH-BASIS accounting rather than accrual accounting. The prior policy of "accruing" sales as they become activated (rather than when they are paid), has created some issues of confusion in reconciling the Company's A.R. vs Available Cash (as well as the dual issue of cash-basis tax returns vs accrual basis pubco filings). As previously disclosed, contracts such as NETFLIX and SHOWTIME are paid over the length of the licensing term. So for HHSE to book three-years of receivables (against Netflix, for instance) during the specific revenue quarter that the sale was activated does not conform to the cash-flow from the contract. Yes, booking a contract "immediately" is allowed under GAAP rules, because it's essentially "credit terms" as opposed to executory performance issues. It was decided that cash-basis accounting would reduce our work load and simplify future reporting and auditing requirements. TO BE CLEAR, for those of you who have not had the benefit of multiple meetings with our auditors, HHSE is now accounting for consignment sales shipments on a CASH basis as described above. We are also accounting for long-term, executory contacts on a CASH basis now. Why? Because until HHSE actually receives payment for shipments to retailers (such as Walmart), there is a contingent possibility that shipments made to them might be returned as unsold product. So how do you account for shipments that might be returned? Do you "book the shipment as a sale" immediately and then "estimate" a projected returns exposure? What happens if LESS units are returned? What happens if MORE units are returned? Does the company need to retroactively re-state the prior revenue reportings to reflect the ultimate difference? And if retailers like Walmart are empowered to return unsold DVD merchandise, does that mean that HHSE should keep the INVENTORY of such shipments on the balance sheet as an asset, until it's actually purchased and no longer subject to potential return? Obviously, many items must continue to be accrued on our reporting - how could "payables" be accounted for on a cash basis? They are debt, not yet paid... (one would THINK that accrual of certain items goes without explanation?). No corporation can adhere to GAAP without some elements of accrual activity. But with respect to the recognition of sales - especially consignment DVD shipments and long-term contracts - the Company's decision to recognize these "as paid" (cash-basis recognition) is a wise policy that conforms to other GAAP elective requirements.
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