Assignment
Overview
One of the measures of success in any business is profitability. Managers and business owners must have an understanding of how to assess the profitability of a company using information about its financial transactions. This is done through the use of accounting.
By working through the accounting cycle, you will understand how money flows through a company. Using this information can help you determine whether an organization can afford to stay open while employing current practices and what types of changes might be needed to allow the organization to become profitable if it is currently struggling financially. This process also helps you understand the level of commitment to attention to detail that is required in a successful business venture.
In this part of the final project, you will use your workbook and course-provided information to provide an overview of Peyton Approved's accounting system and general profitability. This will take the form of a bank memo.
This assessment addresses the following course outcomes:
• Interpret financial statements for informing business decisions
• Analyze how core accounting principles support responsible practices throughout the accounting cycle
Prompt
Your dog, Peyton, has severe allergies and cannot have the usual store-bought dog treats. You have been making homemade treats for him that are all-natural and hypoallergenic. Over the past year, you have been making and selling these treats out of your home and have been quite successful. You now have an opportunity to open your own dog treat bakery. You have decided on a corporate form of business and have named your company Peyton Approved.
During Part I of the final project, you were asked to follow the business transactions for your company for a three-month period from the first step of the accounting cycle through the reporting process. Now you will use this information to compose a memorandum to the bank detailing the results of operations as communicated in the financial statements, as supporting documentation for a request for funding to expand Peyton Approved.
Use your completed workbook from Part I to prepare your memo. Be sure to include an overview of the company's accounting system, a discussion of the results of operations, and opportunities for the company to improve its profitability.
Specifically, the following critical elements must be addressed:
1. Provide an overview of the company's accounting system. Specifically:
a) What basis of accounting is used? Why is this basis most appropriate? How does it support responsible practices within the company?
b) What strategies is the business using to ensure responsible accounting practices? Why have these strategies been selected?
c) Describe the overall accounting process and internal controls for cash that are in place. For example, when are entries made, how often are statements produced and reviewed, and why?
2. Analyze the company's performance based on the accounting information you recorded. Specifically:
a) Analyze the results of operations. What do these results tell a business? For example, what is the company doing well, and what changes might be needed? Use the information in your workbook to support your answer.
b) What do the financial statements say about the strengths and weaknesses of the company's financial position? Be sure to discuss the role of ratio analysis in your response.
c) Is the company going in the right direction? Why or why not? Use the information in your workbook to support your answer.
d) What opportunities can the company explore given its strengths and weaknesses? How would these be beneficial? Support your response with information from your workbook.