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# ACC 290 Week 4 Learning Team Assignment Financial Reporting Problem, Part 1

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Running head: FINANCIAL REPORTING PROBLEM, PART I 1
Financial Reporting Problem, Part I
ACC/290
University of Phoenix

FINANCIAL REPORTING PROBLEM, PART I 2
Financial Reporting Problem, Part I
The company’s annual report is important because it gives the shareholders a clear
picture and understanding about how the company is doing financially. The annual reports
provide thorough information on very significant section of the accounts, such as the balance
sheet, the income statement, and the cash flow statement. The information presented in the
annual report would also be essential to potential investor, employee, and any other people that
may have interest in financial aspect of the business.
The company’s total assets at the end of 2009 were \$39,848,000 (PepsiCo, n.d.).
However, in 2010 its most recent annual report shows an increase to the previous annual
reporting period of \$28,305,000 that brings PepsiCo’s total assets to \$68,153,000 (PepsiCo, n.d.).
This information is important because it demonstrate what the company owns. It gives an
understanding of the financial condition of the company, whether or not there have been
improvement from the previous years.
The current assets are the first thing on the balance sheet under the asset column. A
company lists all of the possessions that it may convert into cash in a short period, that normally
takes place with a year or less. Because these assets can easily turn into cash the company refers
to them as “liquid” assets. Cash and cash equivalents are the most liquid assets found within the
asset portion of a company’s balance sheet. PepsiCo’s cash and cash equivalents for the year end
December 25, 2010 are \$17,569,000 whereas; in 2009 the company had \$12,571,000 in cash and
cash equivalents (PepsiCo, n.d.). PepsiCo had a \$4,998,000 increase in cash and cash
equivalents. This includes short-term investments, accounts and notes receivable, inventories
and prepaid expenses, and other current assets. This represents the company’s liquidity. The

FINANCIAL REPORTING PROBLEM, PART I 3
more cash and short-term investments on hand, the lower a firm’s risk of failure because
management can use the money to carry through tough periods.
Accounts payable is the money in which a company owes vendors for products and
services purchased on credit. In reviewing the most recent financial statement for PepsiCo the
have a total amount of \$10,923,000 owed to vendors (Yahoo Finance, 2011). This is one of the
largest current liabilities because of the fact the companies are constantly ordering new products
or paying vendors for services or merchandise.
As shown on PepsiCo’s balance sheet, the company recorded \$8,292,000 in their
accounts payable for their previous annual reporting period, 2009 (Yahoo Finance, 2011). This
says that PepsiCo purchased \$8,292,000 in supplies, products, and services on credit. They were
liable to pay this amount to their vendors and suppliers at the time they were due.
Net revenues are proceeds from a sale of an asset, minus the commissions, taxes, and
other expenses related to the sale. For example, a case a Pepsi was sold in a store. The net
revenue made from that sale, what money is left after the expenses, commissions, and taxes are
paid. Another example of net revenue would be the profit made from the sale of a truck, land, or
building that PepsiCo owned. PepsiCo reported \$31,263,000 in net revenues for 2010 (Yahoo
Finance, 2011). This is an increase of \$8,130,000 from the reported net revenues of \$23,133,000
in 2009. In 2008 however, PepsiCo reported \$22,900,000 in net revenues (Yahoo Finance,
2011). This is an increase of \$233,000 between 2008 and 2009. As shown, there was a bigger
increase in net revenues between 2009 and 2010.
Net income is one of the most important indicators of a business’ financial health. The
net income is generally the amount remaining after the expenses have been met or deducted.
They usually call this information the bottom line because it is found on the last line of the