Another Type of Accounting Estimate

Another Type of Accounting Estimate - HOCK blog

Similar Concepts – Different Areas of Accounting

As I have been making videos for the FMAA (Financial and Managerial Accounting Associate) Exam, I have had the pleasure of recording videos about topics like accounting for inventory, accounting for fixed assets, and accounting for receivables. I have always liked the way that certain concepts and ideas appear throughout different areas of accounting. For example, for all assets, we want to make certain that we do not overstate the value of the asset. We do this through the lower cost of market for inventory, impairment for fixed assets, and the allowance for bad debts for receivables.

Valuation Methodologies for Inventory and Fixed Assets

I have also liked the similarity of how we determine the value we record for inventory and the value we record for fixed assets. For inventory, it is “all of the costs necessary to get the item ready and available for sale to the customer.” For fixed assets, it is “all of the costs necessary to get the item ready and available for use.” It is very similar; it just changed the nature of the asset.

The Importance of Estimates in Accounting

Another common thing that we do in accounting is we make estimates. We make estimates about bad debts, the useful life of a fixed asset, the salvage value of a fixed asset, and the future cash flows related to an intangible asset.

Accounting Challenges with Gift Cards

Some businesses have another estimate that they need to make that can be a large amount. This is the estimate related to how many gift cards will not be redeemed in the future. I know that giving gift cards as presents is growing around the world. As companies sell more and more gift cards, the accounting issues connected to gift cards become more material. In brief, when a company sells a gift card, it will debit cash and set up a liability of unearned revenue for the amount of the gift card. And then when the gift card is used, they will close the unearned revenue for that gift card and recognize the revenue because the revenue is now earned. That process is clear and simple.

The Concept of Breakage and its Financial Impact

But, as most of us know from our own experience, not every gift card is redeemed. If a company does make an adjustment for that, the amount of unearned revenue (a liability) that a company has on its balance sheet will grow over time.

Therefore, companies make estimates of how much of that unearned revenue from gift cards will never be provided as a good or service. This is called breakage, and this is another estimate that some companies need to make. For companies that sell a lot of gift cards, this is a significant estimate. Starbucks reported $212 million in revenue from breakage in 2022.

State Regulations and Unclaimed Gift Cards

To me, this estimate for breakage is just the opposite of the bad debt estimate. Instead of estimating how much our customers will not pay us in the future, the breakage estimate is estimating how much our customers donated to us. This is another example of the application of an accounting process (estimates) being applied to an area that we don’t often think about. 

In a note for completeness, some states in the United States require that the company attempt to return the money for unused gift cards to the consumers. If the company is unable to return the money to the customer, the money is used by the state for public initiatives.

Brian Hock, CMA, CSCA, CIA, CRMA

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Exclusive EA Strategy Talk with Brian Hock and Timalyn Bowens

Brian Hock, CMA, CSCA, CIA, CRMA, has joined Timalyn Bowens, EA, for an insightful live session about the Enrolled Agent (EA) license – a prestigious designation awarded by the IRS to top-tier tax professionals.

Whether you are aspiring to become an Enrolled Agent or are already one and looking to sharpen your skills and knowledge in accounting practices, this session is for you.



Passing Requires Progress

Passing Requires Progress - Blog

New Year, New Goals: Aiming to Pass Professional Exams in 2024

As we start 2024, it is possible that many of you have made a New Year’s resolution to pass your professional exams in 2024. This is an excellent resolution for the year, and it is one that will provide benefit to you for many years to come.

It is also possible that some of you are making this resolution to pass your exams for the second year in a row. This may be a resolution that you have made in the past but not accomplished. Whether this is your first,or second (or third) year making a resolution to pass your exams, I think that one of the key things to accomplishing your resolution is to keep the time frame in mind.

Understanding the Journey: A Year-Long Commitment

Passing professional certifications is not a short process and there are no shortcuts. There is a syllabus that you need to learn, and that process of learning simply takes time. The perspective that you need to keep in mind is that this is a New Year’s resolution. It is not a This Week’s resolution or a January resolution. It might very well take you the entire year to pass your exam. If you expect to accomplish your goal quickly, you will be disappointed and frustrated.

Focus on Progress, Not Just Passing

While you are studying for your exam, your focus in your studies needs to be progress, not passing. You may not be able to pass your exam this week or this month, but you can make progress toward that this week and this month. If you break the study process into smaller pieces and set goals for each of the smaller pieces, you will be able to see your progress toward passing. These smaller accomplishments will keep you on pace to complete your New Year’s resolution this year.

Tools to Make Progress: HOCK PassMap and Personal Study Planner

HOCK PassMap includes a Personalized Study Planner that helps you stay focused on your exam date and your weekly progress to your goal. It shows an overview of your entire study schedule and an estimate of how many hours you need to study each week to stay on track. As you study, you will see the progress being tracked as the number of hours you need to study decreases. If you are a HOCK student, make sure to set up your approximate exam date in PassMap and follow the Personalized Study Plan. PassMap keeps you making progress towards your goal, one study unit as a time. If you haven’t started your exam preparation yet, start your free trial today.

Certifications: Your Ticket to Career Success and Growth

Count Me In Podcast

Did you know that the IMA (Institute of Management Accountants) has a podcast? It is called “Count Me In” and its producer and co-host, Adam Larsan, recently invited Brian Hock for an insightful conversation about professional certifications.

Here are some of the key takeaways:

  • Certifications are not only about the title; they equip professionals with valuable skills.
  • Using tools like AI enhances the strategic and human aspects of jobs, making professionals indispensable.
  • Love basketball? Maybe you’re not a pro player, but every basketball team needs an accountant. Do you adore music but lack musical talent? Every record label hires accountants. It’s essential to recognize that accounting goes beyond tax and debits; it can align perfectly with your passion.
  • Financial barriers to certification can deter young professionals, but the ROI makes it worthwhile.
  • The breadth and difficulty of exams can be intimidating, but with a proper plan and dedication, they are passable.
  • Acquiring a certification is like running a marathon. While it may seem daunting, the reward at the end is unparalleled.
  • Being part of professional organizations like the IMA provides lifelong networking and growth opportunities.
  • Certifications offer the opportunity for leadership and decision-making experience, which are crucial for career advancement.

Intrigued to know more? Tune into the “Count Me In” podcast for the full conversation and a deeper dive into how certifications can propel your career to new heights:

Watch on YouTube

You can also listen to the podcast on Apple Podcasts, Google Podcasts, or Spotify.


Efficient Time Management for Multiple-Choice Question Exams

Managing time while solving multiple-choice questions (MCQs) on the exam can be quite challenging. The stress is even higher when you get stuck on a question, wasting precious minutes. I have a simple yet impactful tip to help you manage your time more effectively during exams.

The Golden Rule: Every Question is Equal

The crucial thing to remember during a multiple-choice exam is that all questions carry the same weight. What this means is whether you get a simple definition question correct or solve a long, complicated calculation, each contributes equally to your overall score. With this in mind, it’s important to answer all the simple or straightforward questions first before spending a lot of time on any one question.

Navigate Through the Exam Wisely

Another point to consider is that you may find easier questions towards the end of the exam, so make sure you have enough time left to tackle those potentially easy points. How do you do this? The key is not to spend too much time on any complicated or tricky question that you encounter early in your exam.

When you come across a question that seems complicated—full of information or calculations — quickly skim through the question to understand its essence. If it covers a topic you’re comfortable with and can answer it quickly, go ahead and solve it. Otherwise,simply choose one of the options (A, B, C, or D), mark the question for review, and move on. But, make certain you answer the question before you move to the next question.

Use The Review Strategy

By marking difficult questions for review, you can come back to them later if time permits. This strategy ensures that you don’t miss out on answering easier questions that might be at the end of the exam. Once you’ve answered all the straightforward questions, you can return to the marked ones and spend any remaining time solving them.

The Ultimate Goal: Complete Coverage

The end goal is to answer every question, even if some are guesses. When you’ve answered all of the questions, you can go back to check your answers if time remains, or spend time on the questions you guessed on. By not getting stuck on complicated questions during your first run-through, you’ll have more time to tackle the easier questions that you’re certain to get correct. This strategy ultimately offers you a more comprehensive coverage of the paper and a higher chance of a better score.

If you often find yourself wishing for just a few more minutes when you do a timed study session, the key is to manage your time wisely. Remember, don’t spend too much time on any single question during your first pass. Answer it, mark it, and move on. Come back later if time allows, but make sure you’ve answered all the questions you know well first. This way, you’ll maximize your chances of passing your exams. Happy studying!

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A Study Tip to Maximize Your Efficiency

Simply put, one of the first things you need to do is to pick a target exam date. Whether you’re just starting your study journey or you’re midway through it, setting the date is fundamental. Here’s why.

Why Setting a Target Date is Essential

Setting the date when you plan to take your exam gives your study process structure and purpose. If you’re at the beginning of your study journey, you might not know exactly how long it will take you. You might think it’ll be six months, and then realize after a couple of weeks that it could be shorter or longer. That’s fine. The important thing is that you have a goal date in mind.

Drifting Vs. Targeted Learning

Without a specific end date, your study process can quickly become aimless. Before you know it, two months have passed, and you haven’t really gotten very far in your studying. Having a target date fixes this problem by serving as a motivating factor, keeping you on track and ensuring that your studying remains focused.

How to Choose Your Target Date

If you’re unsure how to set a target date, evaluate the following:

  • The time you’ve already spent studying.
  • The amount of time you can realistically dedicate to studying each week.
  • The remaining time you have before the exam.

Taking these factors into consideration, estimate when you think you’ll be ready to take the exam.

Utilizing Exam Planners

If you’re studying with a structured program, like programs we offer at HOCK (CMA, CIA, EA, ESG), you can enter your target date into the exam planner. The planner will then align all remaining study units to help you prepare efficiently for the exam by that date.

The Power of Having a Target

Setting a target exam date is neither difficult nor time-consuming, but it’s a simple step that can have a transformative effect on your study process. With a target in mind, you’re more likely to stay on task, follow a schedule, and be effective in your study routine.

If you haven’t already, go ahead and set your expected exam date. It’s a straightforward action that can significantly increase how effective and efficient your study process will be. Because when you know your endpoint, you can better plan how to get there. Happy studying!

How to Prepare for CMA Exam Essays

If you are preparing for the CMA (Certified Management Accountant) exam, you may have some concerns about the essay section. This concern is understandable and common among candidates. In fact, it’s a topic I’ve written and spoken about before, and it’s worth revisiting. 

The Good News: Unifying Your Study Efforts

A common misconception is that preparing for the Multiple-Choice Questions (MCQs) and preparing for the essays are two separate undertakings. The reality, however, is that the content tested in the essays is the same as that in the MCQs. What this means is when you are preparing for the MCQs, you are also preparing for the essays.

The Common Thread Between MCQs and Essays

Consider this: you might get a capital budgeting question in the MCQ section, and you could also get a similar question as an essay. The same goes for questions about ratios or any other topic.

For example, let’s say you’re asked to calculate the debt-equity ratio in an MCQ. You’ll carry out the necessary calculations, arrive at a number, and then choose the best answer from the options given (A, B, C, or D). Now, if you have a similar question in the essay section asking you to calculate the debt-equity ratio, you would perform the exact same calculation. The only difference is that you don’t have to match your answer with multiple-choice options.

Prepping the Right Way

Many essays are set up as a series of questions based on a given fact pattern, essentially resembling a set of MCQs without the multiple-choice aspect. The skill set you need to answer both MCQs and essay questions is the same, so as you go through your textbooks, watch videos, and tackle practice questions, remember that you are preparing for both types of questions simultaneously.

Additional Steps for Essays

While the core content and skills remain the same, there is one aspect where you might need to do a bit of extra work for the essay section. It would be beneficial to go through past essays released by the IMA (Institute of Management Accountants) to become familiar with how questions are framed and what different types of requirements might appear. This will help you understand the types of questions that you are likely to encounter on the actual exam.

The syllabus tested is the same regardless of the format of the question. So, the key takeaway here is that as you’re preparing for the exam, you’re automatically preparing for all its components. There is no need to fragment your efforts; a well-rounded study plan will equip you for success in every part of the CMA exam. Happy studying!

Mastering the Pace of Multiple-Choice Questions

If you’ve begun your journey preparing for exams, chances are you have faced the difficulty of time management, especially when tackling Multiple-Choice Questions (MCQs). Many candidates find it challenging to complete MCQs within the time given for the exam. If you’re one of them, don’t worry—you’re not alone. In this blog post, I will share some ideas on how to efficiently handle MCQs and be ready to complete your exam in the time you have.

Don’t Worry about the Timer – At First

When you initially start studying and practicing MCQs, you may notice that it takes you longer to answer each question than the time you have during the exam. This realization often leads to stress, but it’s important to remember that it’s completely natural at this stage. The first part of your study journey is not about speed; it’s about understanding the content.

Learning vs. Exam-taking

There’s a crucial difference between learning the content phase and the exam phase of your studies. When you’re in the learning phase, it’s naturally going to take you longer to answer MCQs. You’re still getting familiar with the material, figuring out the formulas, and understanding how to interpret the information presented in the questions. Therefore, your initial focus should be solely on comprehending the content, understanding why a particular answer is correct, and why another choice is incorrect.

Speed Comes with Practice

As you attempt more MCQs, you’ll find that you become faster answering them. You’ll start recognizing how questions are framed and learn to sift through the information more efficiently, understanding what’s relevant and what’s not. Your speed will naturally increase as you grow more familiar with the content and question patterns.

Timing Matters, But Later On

As you approach the end of your study schedule and enter the final review stage and start taking mock exams, that’s when you need to be conscious of time. By this point, you should be more comfortable with the subject matter, allowing you to answer questions more quickly. Some MCQs will still take longer to answer, while others will take less time, but that’s perfectly okay. The key is to be ready to answer each question as efficiently as possible.

Focus on Learning First, Speed Will Follow

If you’re at the beginning of your study journey and are anxious about the time it’s taking you to answer the MCQs, take a deep breath and relax. Don’t worry about speed initially; concentrate on learning and understanding the material. As you practice and get deeper into your study material, you’ll naturally become quicker at answering MCQs. In the end, it’s not just about being fast; it’s about being accurate and knowledgeable, and speed will come as a by-product of that understanding.

Happy studying!

The Power of Starting – Maximizing the Impact of Each Study Session

Today, I want to talk about a critical element that could determine the success of your study sessions. If you’re like most people, you probably don’t jump for joy at the thought of opening a textbook. Studying often competes with other activities that are much more appealing. So, what’s the one essential thing that you need to do to make your study session effective? The answer is simple but powerful: just start.

The Hardest Part Is Starting

Believe it or not, the most crucial action in any study session is beginning. Whether it’s a Monday morning or a Tuesday evening, just starting to study is half the battle. The temptation to procrastinate or do something more enjoyable can be overwhelming. However, the key lies in overcoming inertia and just starting to study.

Reframing Your Perspective

It’s easy to get bogged down by thinking about the length of time you’ll have to dedicate to studying. You might dread a two-hour session or even a one-hour session. However, don’t focus on the length of the study session; instead, concentrate on the first minute. Once you’ve conquered that first minute, you’ll find that the remaining time passes much more quickly than anticipated.

Why Starting Is So Important

This principle of starting doesn’t apply only to study sessions; it’s universally applicable to any long-term project or task. The first step may not be glamorous or exciting, but it’s absolutely necessary. You will never get to the end of your goal without taking the first step and once you’re in motion, it’s easier to stay in motion.

The Psychological Boost

Interestingly, once you begin a study session, you often find that it’s not as dreadful as you’d imagined. Your focus sharpens, your energy increases, and before you know it, you’re in a study “zone.” You may even find that you’re enjoying the learning process and the time you’ve allocated for studying goes by quickly.

So, the next time you have a study session planned, and you’re not particularly excited about it, remember that the most crucial part is to start. That simple action of sitting down and opening your book or turning on your computer sets the stage for a successful learning experience. No matter how long your study session is supposed to be, the most important minute is the first one. Make it count, and you’ll find that the rest of the session will unfold more smoothly than you’d think.

Happy studying!

The Future of Accounting Certifications


The Future of Accounting Certifications

Brian Hock is on the Accounting Influencers Podcast

Brian Hock joined Rob Brown, the host of the Accounting Influencers podcast!

Through his experiences and expertise, Brian has shed light on the future of accounting qualifications and the essential role of technology. As accounting professionals navigate the changing landscape, his advice and perspectives provide a valuable roadmap for success. Listen to the episode to uncover the challenges and opportunities that lie ahead in the evolving world of accounting certifications and learn about:

  • Changes in accounting certifications
  • Competition between the certifications
  • Value of certifications
  • Role and impact of technology on accounting certifications
  • Brian’s career experience in Russia and global perspective in light of current political events

About the podcast: The Accounting Influencers podcast goes live every Monday to 150 countries and 30,000 accounting practitioners, fintech specialists, and influencers in the accountancy, CPA, and bookkeeping space.

Listen Online

Watch on YouTube

You may also like: Unveiling the Secrets of Accounting Certifications and Professional Success