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ZOOM Technologies, Inc. Message Board

  • keltonmanager Aug 22, 2012 11:09 AM Flag

    Cant ignore 17 mil in inventory

    One has to consider that they expect to have continuous orders from new buyers and with 17 mil in inventory and expenses already accounted for profits can be anticipated to rise next report.

    Likely new orders will be announced soon as well.

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    • Hey kelton! Do you understand now or do you need other examples?

    • Now why did I waste all that time trying to think up an easy explanation for you when I could have just copied and pasted this from investopedia!

      Definition of 'Accrual Accounting'
      An accounting method that measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur. The general idea is that economic events are recognized by matching revenues to expenses (the matching principle) at the time in which the transaction occurs rather than when payment is made (or received). This method allows the current cash inflows/outflows to be combined with future expected cash inflows/outflows to give a more accurate picture of a company's current financial condition. 

      Investopedia explains 'Accrual Accounting'
      Accrual accounting is considered to be the standard accounting practice for most companies, with the exception of very small operations. This method provides a more accurate picture of the company's current condition, but its relative complexity makes it more expensive to implement. This is the opposite of cash accounting, which recognizes transactions only when there is an exchange of cash.

      The need for this method arose out of the increasing complexity of business transactions and a desire for more accurate financial information. Selling on credit and projects that provide revenue streams over a long period of time affect the company's financial condition at the point of the transaction. Therefore, it makes sense that such events should also be reflected on the financial statements during the same reporting period that these transactions occur.

      For example, when a company sells a TV to a customer who uses a credit card, cash and accrual methods will view the event differently. The revenue generated by the sale of the TV will only be recognized by the cash method when the money is received by the company. If the TV is purchased on credit, this revenue might not be recognized until next month or next year.

      Accrual accounting, however, says that the cash method isn't accurate because it is likely, if not certain, that the company will receive the cash at some point in the future because the sale has been made. Therefore, the accrual accounting method instead recognizes the TV sale at the point at which the customer takes ownership of the TV. Even though cash isn't yet in the bank, the sale is booked to an account known in accounting lingo as "accounts receivable," increasing the seller's revenue.

      Read more:

    • Now add to this that most companies buy materials and inventory on credit.

      That is why companies have AR and AP otherwise known as accounts receivable and accounts payable.

      The analogy is that you "borrowed" your initial $2,000 from your friend to buy your original 1,000 shares of ZOOM at $2 per share in 2011.

      In 2012 when you sold your 1,000 shares at $1 per share for $1,000.

      You can NOT say:

      "the 1,000 shares you just sold for $1/share means that you made $1,000 in profit because you already "paid" for your shares last year.

      The proper way to account for it is to report your expenses during the same period that you sold your stock. That means $1,000 (sales) minus $2,000 (cost) equals a $1,000 LOSS!

      Now after that your friend which you borrowed your initial $2,000 from on credit wants his money back. Now you gotta pay him $2,000 too!

      This is how business accounting works.

    • Another guy who doesn't know basic accounting.

      ZOOM going back down to $0.80.

    • Can't ignore that $17 million is tied up in a low margin commodity inventory that is depreciating quickly as we speak.

    • The expense of inventory (Cost of goods sold) is not realized/booked until it is sold (unless it is written off as overstock/obsolete). So yes, you can ignore 17mil in inventory -- its all about their margins right now.. They can grow the top line like mad, but if they are not making anything on a phone, this stock is going to continue to drop. If they did reach better economies of scale this quarter and no negative surprises, I would expect a big bounce. Not holding my breath though.