Accounting forCrowdfunding

Derek AguirreEvan Stephan

Alissa CoursonShelby McCoy

Future online investors, join our Kickstarter campaign and help us deliver sweet treats to UTD students.

Fudge the Numbers

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

• $500,000+ - 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 revenueso Revenues all recorded immediatelyo 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 Revenue xx

Restricted Cashxx

How we SHOULD account

When item “tilts”:

Cash xx

Restricted Cash xx

Sales Expense xx

Sales Liability xx

Unearned Sales Revenue xx

Sales Revenuexx

How we SHOULD account

As you give out gifts after “tilt”:

Sales Liability xx

Inventory xx

Sales proceed as normal:

Cash xx

COGS xx

Sales Revenue xx

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