Scenario

Isaac Berman is a former finance manager. When he was downsized, he applied to NYU’s Stern School of Business and was accepted with a full scholarship. His wife, Salomé, has a law degree. Since she specializes in legal issues around public relations, she also has experience with building brands and garnering press.

During a vacation stay in a posh hotel, Isaac and Salomé encountered a set of luxurious sheets. When they returned home and tried to purchase their own set, they were appalled by the $800 price tag. With no background in textiles or manufacturing, the couple spent a year researching the industry, visiting factories, and testing fabrics.

Salomé explains her business concept: “We want to create something completely different—a modern and inviting shopping experience and a brand that delivers a beautiful, well-made product at an accessible price.” Isaac adds, “And we know we can do that by cutting out the middle-men and traditional retail channels, and instead selling direct-to-consumer.” SoftSheets plans to keep costs down by manufacturing in Israel, where the U.S. has free trade agreements, saving 22 percent in costs that would be added on top of the cost of goods sold.

Isaac and Salomé have launched an effort to get funding using the crowdfunding site, Kickstarter, aiming to raise $50k. Isaac and Salomé plan to use the Kickstarter money to expand their marketing campaign and grow their team in order to handle high volume. 

They eventually want to increase their offerings to include things like pillows, duvet covers, candles, and other accessories, as well as a wider variety of their core product—sheets and pillowcases. They expect to eventually need an injection of capital. Lots and lots of capital, but for now, they want to keep things simple and efficient.

Discussion Questions

They have come to your group with two accounting questions:

  1. What type of accounting system should we use—cash or accrual? Accrual sounds too complicated, but maybe cash is too simple.
  2. SoftSheets plans to sell all over the world. Should they follow international accounting standards or United States accounting standards?

Discuss among your peers and come up with the best answers: What are their options? What do you recommend and why? What are the advantages and disadvantages of each?