Fogdog Tempts Fate with Fuzzy Accounting

There's been a lot of business at the Fogdog sporting goods web site as customers are rewarded for making purchases with a plethora of free offers. And the Fogdog income statement looked great - all of the company's promotional items and shipping expenses were categorized as marketing expense, making the gross margin at Fogdog look pretty appealing.

Apparently the practice is pretty widespread among start-up Internet companies trying to boost profit margins to attract investors. But the spoilsport accounting profession says companies need to reclassify these costs as part of the cost of the product sold.

If you give a discount or a prize as part of the purchase, the cost to the company becomes a cost of sales, thus reducing the margin on the sale of the product. The same theory applies to shipping costs that are a direct cost of making a sale.

A new accounting rule is about to force companies to include the cost of free items as part of the cost of sales, and the Securities & Exchange Commission is leaning toward issuing a similar rule specifically aimed at classification of shipping costs.

In Fogdog's situation, the company made a reclassification of expenses last winter and their stock price, which had been in the $10 per share range last February has plummeted to $1 per share.

You may like these other stories...

K2 Enterprises has announced its 2014 technology awards in 27 categories. The only clear message may have been that there was no clear message in a field marked by many good ideas, but no unanimous winners.The company, which...
We're all about QuickBooks this morning. First, read this late-breaking news from John Stokdyk, editor of AccountingWEB (U.K.), who is attending the QuickBooks Connect conference in San Jose, California. Then, for more...
Technology—specifically internet technology—has a record of disrupting tried-and-true methods of operation in ways that we often don't foresee. Look no further than the recent HBO announcement that they *gasp...

Already a member? log in here.

Upcoming CPE Webinars

Oct 30Many Excel users have a love-hate relationship with workbook links.
Nov 5Join CPA thought leader and peer reviewer Rob Cameron and learn ways to improve the outcome of your peer reviews while maximizing the value of your engagement workflow.
Nov 12This webcast presents basic principles of revenue recognition, including new ASU 2014-09 for the contract method. Also, CPAs in industries who want a refresher on revenue accounting standards will benefit.
Nov 18In this session Excel expert David Ringstrom, CPA tackles what to do when bad things happen to good spreadsheets.