For about a year, Frank Poppa has been operating a hot dog standin the parking lot of a major discount retailer in a suburban area.The stand appears to be a pushcart but is actually a small trailerthat is towed from home each day. Frank cleverly designed the standto include storage compartments, napkins, and the like. Whatstarted out as a "weekend gig" to pick up a few extrabucks has turned into a full-time occupation. Frank soon found thaton a hot summer day, he could easily take in more than $1000 fromsales of a full line of fancy hot dogs and cold sodas.
About four months ago, Frankdecided to expand to more locations. He found that large discountretailers were quite happy to provide him adequate space near thefront door because customers enjoyed the convenience and the standhelped build traffic for the retailer. Frank formed Poppa'sDog's Company and negotiated contracts with several retailersto provide pushcart operations outside their stores. The contractsgenerally call the Poppa's Dogs to pay a location fee to theretailer plus 3% of the pushcart's sales.
Frank plans to be very carefulwhen hiring the people necessary to operate the five new pushcartlocations. He is confident that he can assess good moral characterand avoid hiring anyone who would take advantage of him. Frank willhave to spend about $3000 for each new pushcart and relatedequipment. In addition, he will have to finance an inventory of hotdogs, condiments, and sodas for each location. A local bank hasagreed to provide financing.
Until now, Frank has maintainedan informal accounting system consisting of an envelope full ofreceipts, and his personal checking account. The system has servedhim well enough so far, but he is finding that more and more he isgetting his personal financial activities confused with those ofhis business. Frank is positive that the business is profitablebecause he seems to have more money left at the end of the monththan he did when he was working full time as an auto mechanic. Hehas decided he needs a better accounting system and has decided toconsult with a CPA he knows to see what she might recommend.
(Q) What information does Frank's currentaccounting system provide him? What additional information shouldFrank want from an improved accounting system? Make recommendationsto Frank regarding how he can improve his accounting system andidentify a chart (list) of accounts that you would expect to findin Frank's new accounting system. For each account, identifywhether it is an asset, liability, owner's equity, revenue,or expense.