Amazom.com, Inc. is a publicly-traded company that has listed its common stock on Nasdaq Global Select Market which is monitored by the U.S Security Exchange Commission (SEC). The latest form 10-K of Amazon.com has its recent annual report for the fiscal year ended December 32, 2019 (Sec.gov., 2019). This essay explains how the company has utilized accrual accounting in the preparation of its financial statements, computation of depreciation and amortization, and the amount of income tax.
Unearned revenue, “Account receivable net, and other” and Accrued expenses are accounts on Amazon.com's balance sheet providing evidence that it utilizes accrual accounting. The company recorded unearned revenue when it received payments in advance of performing its service obligations although revenue recognition will be done over the service period. For the year ended December 31, 2019, the total unearned revenue was $5,097 million and the adjusting process would affect revenue account in the income statement (Sec.gov., 2019) . “Accounts receivable, net and other’’ on the consolidated balance sheet is the amount related to clients and vendors. As of December 31, 2019, vendor receivable was $2.6 billion which related to purchasing discounts or prepayments prepared on accrual basis (Sec.gov., 2019) . The process of adjusting vendor receivable would affect the cost of the sales account on the income statement. "Accrued expenses and other” on Amazon.com’s consolidated balance sheet includes liabilities mainly linked to payroll and related expenditures and customer liabilities recorded on an accrual basis. Adjustment of accrued expenses would affect General and administrative expense accounts on the income statement. Net sales, Cost of sales, and General and administrative expenses are accounts on the income statement that may be affected if the company make accrual or deferral adjusting entries. This is as a result of the corresponding accounts that are on the Amazon.com’s balance sheet. Any adjusting entry affects both an asset or liability and revenue or expense (Cho, 2019) .
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Depreciation expense is an appropriate portion that a company utilizes on its fixed assets during regular business operations. It’s a periodic expense incurred by a company and is a percentage of its fixed assets. Amortization expense refers to a write-off of an intangible asset such as Goodwill over its anticipated period of usage, reflecting the consumption of that asset. Accumulated depreciation is the whole amount of a corporation fixed asset's charge that has been assigned to depreciation expense since the company started utilizing the asset ( Bentley, 2018) . Accumulated amortization refers to a cumulative amount of entire amortization expense which has been charged on an intangible asset. Using financial statements and notes of Amazon.com, depreciation, and amortization expenses amount was $8,116 million as shown on the cash flow statement and the value is included in the General and administrative expenses. Accumulated depreciation and amortization have been deducted from the amounts of property and equipment, and Goodwill respectively which are von the balance sheet (Cho, 2019) .
Income tax is a tax obligatory on people or entities that differs with respective revenue or profits. It is generally calculated by multiplying taxable income by a tax rate. Provision for income taxes is the projected amount that a corporation or an individual taxpayer anticipates to pay as income taxes relating to the current accounting period. Amazon.com paid income taxes in form of deferred tax amounting to $246 million in the course of its fiscal year 2018 and is shown on cash flow statement ( Sec.gov., 2019 ). The provision for income taxes was $1,425 million and is reported on the income statement (Cho, 2019).
Therefore, Amazon.com being a public company, its evident that the company utilizes accrual accounting in the preparation of its financial statements. Form 10-K has enlightened us on depreciation, amortization and income tax policies of Amazon.com.
References
Sec.gov. (2019). Retrieved 28 October 2019, from https://www.sec.gov/Archives/edgar/data/1018724/000101872419000004/amzn-20181231x10k.htm#s250954694103542BA74E25B433432FBF
Bentley, J. W. (2018). Challenges with Amazon Mechanical Turk research in accounting. Available at SSRN 2924876 .
Cho, J. (2019). Amazon. com, Inc.
