Financial Statements Research for a Publicly-Traded Company Financial Statements Research for a Publicly-Traded Company Financial Statements Research for a Publicly-Traded Company In accrual accounting it is a requirement that accountants adhere to revenue recognition and matching principles, while in cash accounting basis revenue is recognized when cash is paid and expenses when they are paid for. Hence adjustments are made in accrued accounting, are classified into prepayments and accruals (Accrual Accounting Concepts, n.d) According to the “Accrual Accounting Concepts” (n.d) Prepayments are divided into two; prepaid expenses and unearned revenues. Prepaid expenses are expenses paid in cash and recorded as assets until when they get used, while unearned revenues are those that a company receives as cash and records as liabilities before it is earned. When adjusting an entry for prepaid expenses, there will be a debit to an expense account and a credit on the asset account. Unearned revenues are adjusted debit the liability account and credit on the revenue account. Prepayments will increase an income statement account and decrease a balance sheet account. Accruals are classified into two; accrued revenue and accrued expenses. The accrued revenueshave been earned but has not been paid for in cash, adjustments result in a debit on the asset account and credit on the revenue account. Expenses have beenincurred but no cash has been paid for, when adjusting accrued expenses; debit the expense account and credit the liability account. Accruals increase both the balance sheet and income statements accounts. Deferrals occurs when something has been recorded but the amount is to be divided up between two or more accounting periods, are normally recorded as prepaid expense until it is used when it becomes an expense. According to Nike’s 10-K report (2015, p. 109) the balance sheet prepaid expenses and other current assets were recorded to be 1.968 billion dollars and the accrued liabilities stood at 3.951 billion dollars. Recorded on the consolidated statement of cash flows is an increase of prepaid expense and other assets (144 million dollars) and there was an increase in accounts payable, accrued liabilities and income taxes payable (1.237 billion dollars). These shows that accrual accounting basis was used in recording the accounts. According to Nike’s 2015 annual report (2015, p. 100) plant, property and equipment are normally recorded at cost and depreciated over its estimated useful life, in those situations that the useful life of a long-term asset should be reduced, depreciation expense is increased over remainder of the useful life. Depreciation expense of 606 million dollars was recorded on the cash flow statement and an accumulated depreciation of 3.341 billion dollars (Nike’s annual report 2015, p. 118) which is the cumulative depreciation of an asset to a point in its life. Amortization is the spreading of capital e ...

1. Financial Statements Research for a Publicly-Traded Company
Financial Statements Research for a Publicly-Traded Company
Financial Statements Research for a Publicly-Traded Company
In accrual accounting it is a requirement that accountants adhere
to revenue recognition and matching principles, while in cash
accounting basis revenue is recognized when cash is paid and
expenses when they are paid for. Hence adjustments are made in
accrued accounting, are classified into prepayments and
accruals (Accrual Accounting Concepts, n.d)
According to the “Accrual Accounting Concepts” (n.d)
Prepayments are divided into two; prepaid expenses and
unearned revenues. Prepaid expenses are expenses paid in cash
and recorded as assets until when they get used, while unearned
revenues are those that a company receives as cash and records
as liabilities before it is earned. When adjusting an entry for

2. prepaid expenses, there will be a debit to an expense account
and a credit on the asset account. Unearned revenues are
adjusted debit the liability account and credit on the revenue
account. Prepayments will increase an income statement account
and decrease a balance sheet account.
Accruals are classified into two; accrued revenue and accrued
expenses. The accrued revenueshave been earned but has not
been paid for in cash, adjustments result in a debit on the asset
account and credit on the revenue account. Expenses have
beenincurred but no cash has been paid for, when adjusting
accrued expenses; debit the expense account and credit the
liability account. Accruals increase both the balance sheet and
income statements accounts.
Deferrals occurs when something has been recorded but the
amount is to be divided up between two or more accounting
periods, are normally recorded as prepaid expense until it is
used when it becomes an expense.
According to Nike’s 10-K report (2015, p. 109) the balance
sheet prepaid expenses and other current assets were recorded to
be 1.968 billion dollars and the accrued liabilities stood at
3.951 billion dollars. Recorded on the consolidated statement of
cash flows is an increase of prepaid expense and other assets
(144 million dollars) and there was an increase in accounts
payable, accrued liabilities and income taxes payable (1.237
billion dollars). These shows that accrual accounting basis was
used in recording the accounts.
According to Nike’s 2015 annual report (2015, p. 100) plant,
property and equipment are normally recorded at cost and
depreciated over its estimated useful life, in those situations
that the useful life of a long-term asset should be reduced,
depreciation expense is increased over remainder of the useful
life. Depreciation expense of 606 million dollars was recorded
on the cash flow statement and an accumulated depreciation of
3.341 billion dollars (Nike’s annual report 2015, p. 118) which
is the cumulative depreciation of an asset to a point in its life.
Amortization is the spreading of capital expenses for intangible

3. assets usually over the period the assets are useful.
Amortization roughly matches the assets expense to the revenue
it generates. Nike’s annual report (2015, p. 110) form there was
an amortization expense of 43 million dollars while
accumulated amortization is the total sum of amortization
expense recorded for an intangible asset. No records were kept
for accumulated amortization.
Income tax is tax imposed on individuals or entities which vary
with the profits or income earned by the taxpayer, a company
records a valuation to reduce deferred tax and the future tax
consequences. United States income taxes are provided by
financial statement earnings of non-U.S. subsidiaries expected
to be repatriated. Entities recognizes interest and penalties
related to income tax matters in income tax expense. According
to Nike’s annual report (2015, p. 110) financial statements; in
the consolidated statement of cash flows 1.262 billion dollars of
income tax was incurred and no income tax expense was
recorded.
In conclusion Nike’s annual report 2015 shows that the
company adopts the use of accrual accounting methods to record
its accounts hence making adjustments to assets by accounting
for devaluation through the depreciation expense. Amortization
shown it its financial records clearly illustrates that assets are
matched with the revenue they generated. Nike paid its taxes
obligated and did not record any tax expense due.

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