4.1.1 Explicit vs. Implicit Transactions
Up until this point,
we have learned
how to clear
accounting information
through transactions, how
the recording process works
through journal entries, and
how to summarize all this data
into financial reports.
In this module, we are going
to look closer at some journal
entries that may bring
a bit more complexity
to the recording and
adjusting of entries.
Most of the journal entries
that we've made so far
have been a result of a specific
transaction that triggers
the recording of an entry.
Typically, these
kinds of transactions
involve some exchange of
resources between two parties,
such as [INAUDIBLE]
purchasing inventory
for [INAUDIBLE] from a
supplier, or Maria taking out
a loan from a bank to
start a yoga business.
These transactions often come
with invoices or documentation
, that initiate the recording
and specify the components
of the journal entry.
We call these
explicit transactions.
However, some transactions
don't have a trigger per se
but still require the
recording of an entry.
These types of
transactions often
involve some degree of
judgment in determining
the timing and amount
of the journal entries.
We call these
implicit transactions.
I'm Hugh Johnston.
And I'm the chief financial
officer of PepsiCo.
I took that position
in April of 2010.
I came to PepsiCo in 1987.
So coming up on 27
seven years ago,
I joined PepsiCo right out
of the University of Chicago.
I was an MBA student there.
I did leave PepsiCo
for a couple of years
and actually went
to work for Merck.
And then I was asked to
come back to PepsiCo.
, PepsiCo is, obviously,
a huge company.
A fortune 30 company.
We do about $66, $67
billion a year in revenue
and over $5 billion
a year in net income.
The company really participates
in the food and beverage
business.
The business model is really
taking what are fundamentally
foreign-based products and
water, adding some processing
through them, branding them,
creating innovative food
products solutions
to sell to consumers.
We sell, obviously, billions
and billions of products
over the course of the year.
We operate in 200
countries around the world.
The basic way that we
create competitive advantage
as a company is
around three poles.
Number one is brand building.
Our brands are
well-known, they're loved,
they're trusted by consumers.
Number two-- we do it through
our go to market systems.
, Our ability to place those
products within arm's reach
is a competitive
advantage for us.
And then number
three is innovation.
We are a company that
around our products
creates differentiated
products, they're
difficult for
competitors to replicate.
And as a result
of those factors,
we are able to charge a price
premium beyond the input
costs of the product.
EXPLICIT VS IMPLICIT
Let's look at an example to
help illustrate this concept.
Suppose PepsiCo
purchases a piece
of equipment for its
beverage production line.
Initially, PepsiCo
creates an asset
for the equipment that'll lasts
for an extended period of time.
This is an explicit transaction.
However, how will it match
the cost of this asset
with the future
revenues it generates?
Up until this point,
we have learned
how to clear
accounting information
through transactions, how
the recording process works
through journal entries, and
how to summarize all this data
into financial reports.
In this module, we are going
to look closer at some journal
entries that may bring
a bit more complexity
to the recording and
adjusting of entries.
Most of the journal entries
that we've made so far
have been a result of a specific
transaction that triggers
the recording of an entry.
Typically, these
kinds of transactions
involve some exchange of
resources between two parties,
such as [INAUDIBLE]
purchasing inventory
for [INAUDIBLE] from a
supplier, or Maria taking out
a loan from a bank to
start a yoga business.
These transactions often come
with invoices or documentation
, that initiate the recording
and specify the components
of the journal entry.
We call these
explicit transactions.
However, some transactions
don't have a trigger per se
but still require the
recording of an entry.
These types of
transactions often
involve some degree of
judgment in determining
the timing and amount
of the journal entries.
We call these
implicit transactions.
I'm Hugh Johnston.
And I'm the chief financial
officer of PepsiCo.
I took that position
in April of 2010.
I came to PepsiCo in 1987.
So coming up on 27
seven years ago,
I joined PepsiCo right out
of the University of Chicago.
I was an MBA student there.
I did leave PepsiCo
for a couple of years
and actually went
to work for Merck.
And then I was asked to
come back to PepsiCo.
, PepsiCo is, obviously,
a huge company.
A fortune 30 company.
We do about $66, $67
billion a year in revenue
and over $5 billion
a year in net income.
The company really participates
in the food and beverage
business.
The business model is really
taking what are fundamentally
foreign-based products and
water, adding some processing
through them, branding them,
creating innovative food
products solutions
to sell to consumers.
We sell, obviously, billions
and billions of products
over the course of the year.
We operate in 200
countries around the world.
The basic way that we
create competitive advantage
as a company is
around three poles.
Number one is brand building.
Our brands are
well-known, they're loved,
they're trusted by consumers.
Number two-- we do it through
our go to market systems.
, Our ability to place those
products within arm's reach
is a competitive
advantage for us.
And then number
three is innovation.
We are a company that
around our products
creates differentiated
products, they're
difficult for
competitors to replicate.
And as a result
of those factors,
we are able to charge a price
premium beyond the input
costs of the product.
EXPLICIT VS IMPLICIT
Let's look at an example to
help illustrate this concept.
Suppose PepsiCo
purchases a piece
of equipment for its
beverage production line.
Initially, PepsiCo
creates an asset
for the equipment that'll lasts
for an extended period of time.
This is an explicit transaction.
However, how will it match
the cost of this asset
with the future
revenues it generates?
