Tac Case

T4Me Apparel Corporation (TAC): Accounting for Sales, Inventory, and Receivables

Having already developed a successful fashion blog, Nicki Singer recently branched out by taking over ownership of an apparel company in January 2012. Running a clothing company had long been one of her dreams, so she jumped at the chance to acquire all the common shares of T4Me Apparel Corporation (TAC) from a friend who was moving to Europe. Nicki’s quirky personality and keen fashion sense seem like a good fit with TAC—a company that sells graphic design and custom T-shirts. Although Nicki has little business experience, she has lots of energy that she believes will allow TAC to flourish under her leadership. TAC’s business model is a simple one. The company purchases batches of plain T-shirts in the winter from suppliers. These shirts are received and stored in a warehouse in Saskatoon. Using about half of these shirts, TAC produces “graphic” shirts by applying various designs purchased from a local artist each spring. The resulting graphic shirts are ready for sale to retail clothing stores throughout the summer months. The retailers are asked to pay for shirt purchases within 30 days of TAC’s date of sale. At the end of the T-shirt season, TAC gives a full refund to retailers for any unsold graphic shirts, provided they are returned by October of that year. TAC then sells these shirts to discount stores for about one-half of TAC’s original cost. In prior years, most retailers had sold all the graphic shirts so the generous return policy had little effect on TAC. TAC uses the other half of its plain shirts to produce “custom” shirts on order from local teams, clubs, and businesses. Unlike its sales to retail companies, TAC requires that these customers pay in advance and TAC does not allow returns. Until recently, TAC has had no outside financing and few financial statement users. The previous owner hired a part-time accountant only to prepare financial statements for tax...