Do you subscribe to any magazines? Most of us
subscribe to one or more magazines such as
Cosmopolitan, Sports Illustrated, Golf Digest,
Newsweek, or Rolling Stone. Magazines usually
require us to prepay the yearly subscription
price before we receive any issues. When
should the magazine company record revenue
from the subscriptions? As we discussed in
Chapter 2, sometimes revenuesare earned and
expenses are incurred at the point cash changes
hands. However, for many transactions, such as
magazine subscriptions, the revenue is earned
when the magazine is delivered. Large corpora-
tions are required to account for revenues and
expense when the benefit is substantially pro-
vided or consumed, which may not necessarily
occur when cash is either received or paid.
For example, Wendy’s International
records revenues when cash is received at the
cash register from meal sales. However, the in-
gredient costs associated with each meal are
recorded at the time the meal is sold, not when
the various ingredients are purchased. With
over 4,000 restaurants, Wendy’s has become a
successful company, climbing to the third
largest fast-food chain in the United States.
How did Wendy’s succeed in the highly
competitive fast-food industry? First, through
innovation. Wendy’s was the first restaurant to
feature a salad bar. This was a radical change
in the fast-food industry. Second, the company
created a family-friendly atmosphere by deco-
rating with glass lamps and bentwood chairs.
Third, it emphasized the importance of making
each sandwich fresh, never frozen, and offering
customers a choice of toppings. Fourth, it is
continually responding to customer taste
changes, such as introducing the “combo
choices” program, which lets customers replace
french fries with side dishes such as a baked
potato or chili.
In this chapter, we continue our discussion
of financial statements and financial reporting
systems. In doing so, we focus on accrual con-
cepts of accounting that are used by all major
businesses, such as Wendy’s. Our discussions
will include how to record transactions under
accrual accounting concepts, update accounting
records, and prepare accrual financial statements.
Because all large companies, and many small
ones, use accrual concepts of accounting, a thor-
ough understanding of this topic is important
for your business studies and future career.Sources:Richard Bloom, “Wendy’s Strives to Refresh Stale
Brand,”The Globe and Mail, January 6, 2005.Wendy’s
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