Accounting for Crowdfunding Evan Stephan Derek Aguirre Alissa Courson Shelby McCoy
Future online investors, join our Kickstarter campaign and help us deliver sweet treats to UTD students.Kickstarter Fudge the Numbers
Donating upwards of $5 will result in a reward being sent. $5 - have a cookie! $7 - get a brownie! $10 - receive both delicious treats!
Provides different levels of rewards to online investors based on the amount of cash given. Rewards-Based Crowdfunding
DR: Cash CR: Donation Current Flawed Accounting Method
1. Donation Definitions 2. No Tax 3. Annual Reports 4. Expense Recognition Principle Main Issues
According to the Random House © Dictionary: Donation: a gift, as to fund; contribution Gift: something given voluntarily without payment in return, as to make a gesture of assistance 1. Definitions
Donations/gifts are not taxed. Profit levels appear higher. 2. No Tax
On October 2013, SEC released requirements for crowdfunding: Less than $100,000 - provide financial statement certified by the principal executive officers $100,000-$500,000 - provide certified financial statements from a CPA $500, prove an independently audited financial statement Jumpstart Our Business Startups (JOBS) Act
Annual reports must be filed with the SEC by a company which completes a crowdfunding round. 3. Annual Reports
Companies need to use accrual based accounting Expenses are not matched with revenues o Revenues all recorded immediately o Expenses not recorded until months-years later 4. Expense Recognition Principle
When you get donations before “tilt”: Restricted Cash xx Unearned Sales Revenue xx If the product does not reach tilt: Unearned Sales Revenuexx Restricted Cash xx How we SHOULD account
When item “tilts”: Cash xx Restricted Cash xx Sales Expense xx Sales Liabilityxx Unearned Sales Revenue xx Sales Revenue xx How we SHOULD account
As you give out gifts after “tilt”: Sales Liability xx Inventoryxx Sales proceed as normal: Cashxx COGS xx Sales Revenuexx Inventory xx How we SHOULD account
Allows companies to exchange a percent of ownership in return for funding A great next step for companies after a successful rewards-based crowdfunding Insiders anticipate equity crowdfunding will transform startup businesses Equity Crowdfunding
-Made legal through the Jumpstart Our Business Startups (JOBS) Act -Title 2 : Allows private companies to publicly share and advertise that they are funding –Entrepreneurs can now easily use social media to sell equity shares with investors across the country Equity Crowdfunding
2014 Crowdfunding Projections - $10 billion Based on the growth from previous years and the legal changes due to the JOBS Act Since new law states that companies with >$500,000 in revenue must be audited Creates more jobs and income for smaller firms Bright Accounting Future
Crowdfunding is an innovative new way for entrepreneurs to gain capital Improved way to account for rewards-based crowdfunding Equity crowdfunding is the next step for successful rewards-based crowdfunding ventures Conclusion