ACT507 Accounting for Managers Assignment Sample
Here’s the best sample of ACT507 Accounting for Managers Assignment, written by the expert.
Introduction
This assignment is based on a business selected and answers some accounting related questions in relation to the selected business.
Brief of Business
The name of the new business will be “Health Bite” that will be opened with the purpose of serving healthy food to the people of London, UK operating in food and beverage industry. The new business will offer a wide range of healthy and tasty snack food products for the people. It will be manufacturing company as it will product itself and offer these products to the people at its stores and through online order facility. It will offer potato chips, potato snacks, organic snacks like organic Cereal cakes and organic flaxseeds, low-fat food items, Keto products, mixed vegetable chips, and ready-to-eat products with healthy aspects. In addition, Health Bite will also offer free home delivery services and discount offers to the customers, so that they can be attracted to purchase products from firm’s website as well as different physical stores. It will be a retail business as it will offer its products on its stores only on retail. This business is at starting level as it will start from medium business but over the time, it has target to be a large organization. The legal form of the business will be a private limited firm as it will establish its production unit and will register as a private limited firm.
Reasons for selecting legal form
A private limited legal structure limits the liability of the owner to their shares and restricts the shareholders from publicly trading shares. This legal structure is selected for this business because this legal form enables the business to limit the liability of the shareholders to their shares only. If the business needs to be closed, then there will no risk for the shareholders to lose their personal assets in financial slowdown or recession. At the same time, this legal form also restricts the shareholders to sell their shares to outside buyers that reduce the risk of hostile takeovers. Apart from this, this legal form also provides continued existence as if the owner dies or leaves the business; the company will be in existence. This form will also provide tax advantages as compared to other legal forms (Thomas, 2012).
Different financing options to set up business and the reasons for choices
One of the financial options will be owner’s fund as this finance arrangement will be done by the owner himself. There is no need to any return to the owner’s fund and this fund can be used for longer period. There is no need to pay any interest and repaid the money. At the same time, another option can be equity financing as this financing method can be helpful for the business to arrange large amount of fund for longer period (Sargeant & Jay, 2014). However, there will be need of providing the returns to the shareholders in form of dividend but this method will be suitable in form of no repayment obligation that provides extra working capital to grow the company’s business.
Role of accounting as it relates to the business
The accounting plays an important role in recording and documenting all the transactions in proper way to draw the meaningful decisions. All the transactions related to purchasing of raw materials, food production, packaging, distribution, selling and marketing will be recorded and documented by adopting effective accounting practices. It will also be beneficial to decide the cost of the food products and decide the price to sell the products with reasonable profit. Management accounting will help the management of the firm to make better strategic and operational decisions by using the accounting information (Lasher, 2013). The accounting information will also be useful for the managers and employees to make decisions at operational level like production of food items, quantity used and costing and sales price. Apart from this, this information can be sued by the investors to make investment decisions and contribute to the growth of the new business.
Use of financial statement analysis for the management of the business
The use of financial analysis like ratio analysis would be useful for the management of the business. Ratio analysis would be significant for the management of business to determine the financial health in each year and take measures to improve the lacking areas. Several decisions related to conversion of assets into sales and better utilization of resources to improve profits can be taken by the management based on ratio analysis. Through this, the management can get the information related to profitability, efficiency, liquidity and share performance that can be useful to make further investment decisions (Lasher, 2013). It would also be helpful in financial forecasting and planning and conveying the information contained in the financial statements to the one for whom it is meant.
Examples of the Property Plant and Equipment assets and the depreciation method
- Building
- Furniture and fixtures
- Land
- Machinery
- Vehicles
- kitchen equipment
Straight line depreciation will be the most suitable method for this business as it spreads the cost evenly over a number of years. This method is easy in use and simple to apply. At the same time, he cost-benefit rule comes into play as the use of this method is also cost effective for the new business to keep things simple (Brigham & Ehrhardt, 2011).
Example of unearned revenue and example of prepaid expense that may occur
In the accounting, the term unearned revenue can be defined as money that business not earned year. For example, advance from the customers, profit determination on assets before sale, advance interest receive, advance rent receive are unearned revenue for a company. In the reference of Health Bite, it is found that unearned revenue is advance collected by the customer for its party order in the next week.
At the same time, prepaid expense can be defined as an expenses that has not occurred yet but company has paid in advance. For example, advance to payment for insurance, utilities, rent, suppliers, phone are some prepaid expenses. Payment done for insurance is a prepaid expense because it is paid for the two year in the business of the Health Bite (Beatty and Liao, 2014).
Provide a list of items statements, accounts, ratios, that measure in grant decision
Financial Statements – Financial statements is a formal record of the financial business performance of the company or business. It represent the overall summary of the business in the financial year. The following statements will be reviewed by the bank for decision of grant:
- Income statement
- Balance sheet
- Chas flow statement
- Change in equity statement
Accounts – An account is record of the financial transaction in the business. It is prepared for the each business item. In order to make the decision on grant, bank can check the following account of Health Bite:
- Assets
- Liabilities
- Income
- Expenses and
- Equity
Ratios – Ratio is able to determine the financial ability and performance of the company in the different manner (Dutta and Patatoukas, 2016). By evaluating the financial ratio, various decisions are made by the users. Following ratios can be measured in the grant decision:
- Liquidity ratio
- Efficiency ratio
- Profitability ration
- Leverage ratio
- Market performance ratio
Considerations that the management on distribute profits
The distribution of the profit is known as the dividend that is paid to the shareholder according to term and regulation. The decision of distribution of the profit depends on the various situation that determines whether company should distribute the profit or not. In this, it is found that management will concern first whether company has earned the sufficient profit so that it can distribute among the shareholder. In the second point, the management will also concern the code, accounting standard rules, contact between the investors and company. After the evaluation, the management will take the decision of the distributing the profit (Henderson et al., 2015).
Hypothetical cash flow statement business
| Cash activities | Amount $ | |
| Operating activities | ||
| Cash received from customers | 170000 | |
| Cash received for interest | 10000 | |
| Cash paid for salaries | -24000 | |
| Cash paid for rent | -10000 | |
| cash paid for other items | -30000 | |
| Cash provided by operating activities | 116000 | |
| Investing activities | ||
| Purchase of Land | -50000 | |
| Purchase building | -25000 | |
| Invest in business | -5000 | |
| Sales Property | 22000 | |
| Cash provided by investing activities | -58000 | |
| Financial activities | ||
| Payment of Dividends | -5000 | |
| Repayment of debt | -10000 | |
| Repayment of equity | -15000 | |
| Issue new shares | 20000 | |
| Cash provided by Financial activities | -10000 | |
| Net cash flow in current year | 48000 | |
| Opening balance | 15000 | |
| Net cash flow end of the year | 63000 | |
Examples Of Operating Activities, Investment Activities And Financing Activities
Operating activities – Operating activities includes the transactions related to day to day business activities. For example, payment to supplier and received from debtors
Investment activities – Investment activities includes the sales and purchase of the long terms assets in the business. For example – land, building, and other long term assets
Financial activities – Financial activities indicates to all the transactions related to liabilities, shareholder and equity. For example, dividend payment to shareholder is financial activity (Gassen, 2014).
Conclusion
From the above discussion, it can be said that the knowledge of financial accounting is essential to run the business in the effective manner because it helps the manager, accountant and other to maintain the record the financial activities in the business. Business includes the some advance payment receive and advance expenses that recorded in the different manner because advance payment receive is unearned revenue and advance expenses is prepaid expenses. At the same time, it can also be concluded that cash flow statement includes the mainly three activities that are cash flow from operating activities, cash flow from investing activities and cash flow from financial activities.
References
Beatty, A. and Liao, S., 2014. Financial accounting in the banking industry: A review of the empirical literature. Journal of Accounting and Economics, 58(2-3), pp.339-383.
Brigham, E. F. & Ehrhardt, M. C. 2011. Financial Management: Theory and Practice. USA: Cengage Learning.
Dutta, S. and Patatoukas, P.N., 2016. Identifying conditional conservatism in financial accounting data: theory and evidence. The Accounting Review, 92(4), pp.191-216.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.
Lasher, W. R. 2013. Practical Financial Management. USA: Cengage Learning.
Sargeant, A. & Jay, E. 2014. Fundraising Management: Analysis, Planning and Practice 3e: Analysis, Planning and Practice. UK: Routledge.
Thomas, E. 2012. How To Start a Home-based Food Truck Business. UK: Rowman & Littlefield.
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