Fess-Up Time
Forbes Online (09/18/00) Vol. 22, No. 49 p.A8; MacDonald, Elizabeth

The online sporting goods store Fogdog brought millions of customers to its site through hundreds of thousands of dollars worth of giveaways and freebies, but the company did not account for the freebies appropriately. Fogdog stuffed its giveaway and shipping costs into marketing expenses instead of recording them as cost of goods sold. Fogdog's gross margins were beefed up as a result, but in December, facing possible mandated changes, Fogdog admitted the maneuver, and "reclassified" $1.5 million as cost of goods sold. The reclassification was solely responsible for dropping 10 percent off of Fogdog's gross profits of 1999. However, Fogdog is not alone, according to accounting analyst Jack T. Ciesielski, who says that putting discounts and shipping costs below the gross profit line has become a popular way to please Wall Street. George Neble, an e-commerce accounting partner at Arthur Andersen, said, "I think companies have taken advantage of fuzzy accounting rules and have abused the situation."


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