Coca Cola Accounting Cycle Essay Example
Coca Cola Accounting Cycle Essay Example

Coca Cola Accounting Cycle Essay Example

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  • Pages: 3 (714 words)
  • Published: February 9, 2017
  • Type: Case Study
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The Coca-Cola Company “branded beverage products available to consumers throughout the world through our network of Company-owned or controlled bottling and distribution operations, bottling partners, distributors, wholesalers and retailers — the world’s largest beverage distribution system” (The Coca-Cola Company, 2010, p. 91). Coca-Cola uses two methods of accounting the equity method and the cost method. The company’s financial statements are prepared according with accounting principles generally accepted in the United States.

In addition the company has a hierarchy of management who is responsible for internal controls and preparing financial statements. The company consolidates accounting information into one set of financial statements. Consolidation “Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require management to make estimates, judgments and assumptions that affect the amounts reported in th


e consolidated financial statements and accompanying notes” (The Coca-Cola Company, 2010, p. 39 ).

The company’s most critical accounting policies and estimates relate to basis of presentation, principles of consolidation, purchase accounting for acquisitions, recoverability of noncurrent assets, pension plan valuations, revenue recognition, income taxes, and contingencies. Management discusses “development, selection and disclosure of critical accounting policies and estimates with the Audit Committee of the Company’s Board of Directors” (The Coca-Cola Company, 2010, p. 39). The company recognizes revenue when evidence of arrangements exists, delivery of products, sales price charged, and collectability is assured.

Cash discounts, funds for marketing, volume-based incentives are deducted from revenues. In some cases these deduction are paid in advance for distribution rights and recorded as prepaid expenses then amortized over a period of time. Advertising costs are record as prepaid expense

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assets while shipping and handling costs are recorded as cost of goods sold. Time deposits and other investment that are highly liquid and have a maturity of three months or less are considered cash equivalents as well as short-term maturities of more than three month but less than a year.

The company uses “the equity method to account for investments in companies if their investment provides them with the ability to exercise significant influence over operating and financial policies of the investee” (The Coca-Cola Company, 2010, p. 39). The cost method is used when the company does not have controlling interest or account for with the equity method and record dividends when dividends are declared. Debt securities are recorded as amortized or at fair value.

Trade accounts receivable are recorded at net realizable value and the value includes allowances for anticipated uncollectable accounts which are charged to doubtful accounts. Inventory is recorded at cost and the cost is determined by average or first-in first-out methods. When appropriate the uses derivatives as a risk management tool for potential uncertainties in the market such as foreign currency exchange rates, commodity prices, and interest rates. Derivatives are recorded as prepaid expenses, other assets, accounts payable, or accrued expenses as necessary.

Property, plant, and equipment are record at cost and the straight-line method is used for estimated useful life of the assets. The company offers stock options and stock awards plans which are recognized as a “compensation expense on a straight-line basis over the period the award is earned by the employee” (The Coca-Cola Company, 2010, p. 99). Internal Controls Management is responsible for establishing and

maintaining internal controls over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934.

Coca-Cola employs an Audit Committee who meets with independent auditors, management, and internal auditors to discuss accounting procedure and reviews reports. In addition meetings are held without management to ensure that the independent auditors and chief internal auditors have full access to the Audit Committee. The company also employs and independent public accounting firm to conduct audits. Conclusion The Coca-Cola Company is a global company with the world’s largest beverage distribution system.

Because the company has a global network it consolidates its financial statements and uses two methods of accounting equity and cost methods. Equity method is used when Coca-Cola has controlling interest or influence over operations of an entity. The cost method is used when the company does not have controlling interest or influence or when the company is selling finished product. Internal controls for accounting procedures are taken very seriously and uses procedures and committees internally and externally to ensure that all rules and regulations for accounting are followed.

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