Audio Visual Presentation: GB518: Financial Accounting Principles and Analysis

Natalie is now at the stage as to how she would like to run her business, and she has a few options from which to choose from. There are factors like the level of ownership, liability, and taxes that Natalie must consider before choosing the type of business structure that she would like the company to fit. The three main structures that she will be reviewing are Sole Proprietorship, Partnerships, and Corporations. Each one has great benefits to her company, but they also come with disadvantages.

Advantages and disadvantages of Sole Proprietorships, when it comes to being the Sole Proprietor in a company, the great advantage is having complete control over the business. Due to having complete control over the business, many small business owners choose this option. However, there are two main downfalls to being the Sole Proprietor of a company. First, there is no separation between the business liabilities and assets from the owner's liabilities and assets. Leaving the owner entirely financially responsible for all debt if the business fails. The other downfall is that it can be hard to get a loan from the bank, meaning raising money to start can become a problem for Natalie. All content must be cited.

Advantages and disadvantages of Partnerships with Partnerships, Natalie is seekinglooking at two or more owners to help carry the business. With this organizational structure, some of the advantages are that everyone contributes their money, skill, and labor. They also share both in the company profits as well as losses. Unlike the Sole Proprietor, the Partners are not seen as employees, and tax will not be withheld from any distributions. With that, the Partners will need to have an estimated tax payment on expecting profits. Comment by Dr. Self: This is not entirely accurate.

Advantages and disadvantages of Corporations : The corporate business structure is more complicated than the other two mentions earlier. Corporate will have the business separation from Natalie's finance. Counting as an advantage to both Natalie and her business. However, when forming this type of business , there areincurs formation fees associated with it. A corporation is under state laws, Natalie will be looking at income tax at both the state and federal levels and putting a significant obstacle and burden for a college student to overcome.

Recommendations, after going over all the three primary types of organization. It would be best that Natalie company work under a Sole Proprietor business. These structures are intended for a small business owner, giving her full control. She could avoid any chance of getting double tax. Also, since federal taxes are taking from her employee salaries, this would lessen her liability. Comment by Dr. Self: A definitive recommendation, supported by reasoning, is required. Suggesting what might be best is not sufficiently assertive. Comment by Dr. Self: In a formal analysis, words like “while” & “since” should only be used in the context of the passage of time. In this context, the word “because” would be appropriate grammar

Accounting Information – Get an Accountant or Not?

Businesses only succeed if they make a profit and manage to keep all their finance under control; proper accounting is essential. Accounting is excellent because it helps make sure that all financial aspects follow government laws to aid in the decision-making process. Accounting also keep records of all expense and income. This information is transfer to three vital financial elements. The first one is the balance sheet statement, showing a financial snapshot on a given date. Secondly, we have an income statement that focuses on the business profits and loss. Lastly, the cash flow statement records the business cash revenue and expense that happen during a specific timeframe ("The Role of Accounting," 2019). Having the Accountant every step of the way can make it a lot easier for Natalie, however, since because this company is Natalie's first business. She does not have to worry about hiring someone full-time or even part-time. Natalie can use one of the numerous software that is out there for accounting. Yes! Some might have fees associated with them but not the cost it would be to hire an Accountant. This software often has more than one Accountant that will be at her disposal with any issues. Comment by Dr. Self: Long, uninterrupted paragraphs diminish readability and effectiveness of the analysis. Content must properly flow and sequence. Use transitional passages. And, subheadings are vital for proper organization.

Financial Accounts – Revenues, Expenses, Assets, and Liabilities

Any profits made from Natalie’s cookies and the fees associated with attending her cooking class would be considered her Revenues. The expenses that she will encounter areface is the costs of doing business daily and keeping everything going, like for instance, the ingredients for the baking; she will need eggs, flour, spices, milk, mixers, salt, sugar, cookie wrapper, baking sheets, and baking pan spray. Another expense she will incur is the cost of gas for the vehicle. Next is her assets, Natalie’s asset is the kitchen equipment and her car. As for Liabilities, Natalie does not have any yet. If she did, it would be as followed: company's commitment, promise services, unpaid debts, and unfulfilled orders or classes. All content must be cited.

Banking Decisions – Separate Banks

A separate bank account is a must in any business. By separating the bank, less conflict of interest can build Natalie's credibility among any possible investors and customers. Having a Business bank account would give Natalie the same advantages that corporate business has. These accounts offer excellent protection, purchasing power, preparedness, and professionalism. The protection it provides is once again keeping business financial liability away from personal. With the purchasing power that the business account would offer, she has the chance of having credit accounts. Sometimes, startup companies like Natalie can use these credit accounts to purchase big-ticket items and make payments to establish a more generous credit line for the business. ("Open a Business Bank Account," 2019). The professionalism aspect allows for daily business operating, taking payment via checks, debits, and credit cards. Preparedness is something that Natalie's account could give her, and this service is where how she can access lines of credit if any unexpected issues arise. Comment by Dr. Self: Use “area” and “where” to describe a physical or geographical location within a formal analysis.Avoid colloquial language in formal analysis. It diffuses the meaning and detracts from the content.

Transportation - Company Car, Personal Car, or Both

Wanting to make sure that Natalie keeps the business and personal life separate in all aspect of her business. She will need to get a car just for the business if her finance allows for that extra cost. However, seeing that Natalie is most likely not in the position to do that and assuming that her vehicle will be the primary transportation method until her finance allows it. She will need to keep meticulous records of mileage on each trip related to her business. She needs to keep track of the service and maintenance, and fuel expense. By having these records, possible tax deductions can be available to her.

II. CC2 – Accounting Decisions

Assessment of Financials

The way businesses assess their financials is by looking at the three main vital statements mentioned already. These three statements are the balance sheet, cash flow, and income statement, each with their specific purpose to the business finance. The balance sheet tells how the company stands financially by assessing the shows assets, liabilities, and stockholders’ equity. Next is the cash flow; this statement tells the overall flow of money in and out of business by assessing the operations, investing, and financing elements. Finally, it is the income statement, looking at all the income incurred by the company. These incomes are Gross, Operating, Pre-tax, and Net income ("What is the Difference Between Income Statement, Balance sheet, and Cash Flow? DiPietro, 2020). Comment by Dr. Self: Do not use the title AND the author in a citation.

Cash Positions Assessment

Whenever someone enters any partnership, it should be feasible before committing. This same type of thing goes with joint business with any company. It needs to make sense to do so. Both parties need to be profiting from such commitment. Before Natalie agrees to join "Biscuits," a national food retailer, as one of their suppliers, she needs to go over their balance sheet and cash flow statement. After going over the statements and they still have extra cash assets to spare, Natalie should join them as a supplier. All content must be cited.

Examining long-term financial success with Biscuits.

Longevity is in a business is what many investors and consumers look to see. The first step in analyzing their long-term health would be to look over their income statement and the balance sheet again. Using the balance sheet to show all readily available assets and then using its income statement over time. If the income statement shows that the company has continuous profit growth, it is safe for Natalie to assume that they will continue making a profit for the future. All content must be cited. Many of the segments lack required supporting citations.

Evaluation of Biscuits profitability

Profitability information on the company is on the income statement. Natalie will use this statement to calculate Biscuit's profit margin. The basic calculation goes like this. She will take the net sales minus the cost of goods sold and then divide the answer by net sales to get the profit margin. This profit margin will let Natalie know that the company has priced the products correctly and is exercising reasonable cost control.

Biscuit Debt Review

Here is where the balance sheet comes into play again. Remember that the balance sheet is where the company outstanding debts and how healthy the finance stands. Using this statement to calculate the interest coverage ratio helps determine if Biscuit would meet its interest payments on debt. After calculating the interest coverage ratio where in which the number is below 1.5, Which is a cause for concern, Natalie should reconsider doing business with Biscuits. Comment by Dr. Self: This is not a grammatically complete sentence.

Review of Biscuits dividends

TBoth the cash flow and balance sheet have record dividends on there. However, the balance sheet is where Natalie can determine whether Biscuits pays a dividend. On the balance sheet, if the retained earnings and cash decrease, the dividend has been paid (Where do dividends appear in the financial statements? 2020). Comment by Dr. Self: This is not accurate analysis.

Growth concerns with partnership

Since Because Natalie already speculated about doing business with Biscuits, the newspaper had a section on how Biscuits is known for selling and promoting cookies and dough with high sugar and fat levels. Due to these factors, the consumer demands for the products has been decreasing. This information is leaving her questioning their reputation and credibility. She should get an outside, unbiased financial auditor to ease her mind about the financial aspect. However, hiring that third-party individual is an expense for her, even though it can benefit the business. In the personal aspect where her conscience and moral ethic is high, Natalie needs to re-evaluate her own reputation and credibility to better decide joining Biscuits.

III. CC5 – Inventory Decisions

Exclusive Mixer Distributor

Keeping track of everything that goes in and out of business is crucial, and if not done correctly, it can break a business, causing the business to shut down. Knowing what is in the inventory is essential to prevent that from happening. Natalie's creative mind provides her with great pleasure to become an exclusive distributor for her fine mixers. These mixers are inventory for Natalie, meaning that their products that should be readily available for sale. According to Milano 2019, anything that aids in making cookies for the business should be considered equipment. The mixer falls under the equipment category. All content must be cited.

Tracking Inventory

Choosing the right type of tracking system is just as crucial because inventory types differ and have pros and cons. There are two types of tracking systems that Natalie can use in her business. The first she can look atalternative is the Perpetual Inventory System; this allows her to track inventory in real-time. Due to the sophistication and outstanding attention to detail, this system is precisely accurate and uses much more bookkeeping to sustain. The other system is the Periodic System. According to Stevens, this method takes physical counts of the inventory periodically. This system can be at the end of each month, quarter or year based on the business. The one that fits Natalie's needs is the periodic system. She has a small business and not many mixers (inventory). Using the periodic system will be much easier to use and maintain. The same can be said about her cookies as well. She does not mass produce, so it will be easier to use the periodic system. Comment by Dr. Self: Eliminate unnecessary, repetitive content.“Same” and “as well” mean the same thing in context.

Counting Inventory

Natalie can continue using the periodic method to count her inventory at the current level of business. However, If Natalie's business grew substantially over the years. Having a great deal of inventory going out and coming in, she can step up her counting method and use the perpetual system. This method will eliminate the need to count her inventory manually; instead, it will be a more complex computerized system to keep track of the inventory. Cookie creation will need to get to that level of business operation before considering going that route because doing now would be unnecessary. Comment by Dr. Self: The inventory must still be physically counted to ensure records are accurate and that the inventory that is supposed to be available is actually there. It is appropriate to count inventory once a month or year, depending upon materiality.

IV. CC7 – Internal Control Decisions

Evaluate the internal control of Cookie Creation suggestion

Natalie has been going through a struggle lately with her financing, and one of her friends approached her. He proposed that he could do her accounting for her. This type of question opens the floor to how internal control will be. There two types of internal control to have in mind; let us look at the detective approach. With this approach, any errors or problems will only show after it has already happened. While on the other handAlternatively, there is the preventive control, which decreases the chance of any errors or problem before it happens. Comment by Dr. Self: In a formal analysis, words like “while” & “since” should only be used in the context of the passage of time. Avoid colloquial language in formal analysis. It diffuses the meaning and detracts from the content.Formal writing suggests we use “Economy of Expression”. This means we should use the fewest words possible to convey our message.To help accomplish this, use fewer words when possible. This will also improve the analysis and enhance the content.

John had several suggestions about ways to help Natalie. The very first one is holding the cash until it is enough that they can take it to the bank twice a month and deposit it. John also makes the statement that he would keep the money in the car until it is time to deposit. That right there is a very risky suggestion and bad business practice. If anyone gains knowledge of such a thing, numerous things can happen to both the business and them. For example, someone can break into the car and steal the money. Now that means lost money and more expense to pay for car repair.

The signing of all checks, including the ones for service that he performed, John would like Natalie to place in his control. This suggestion is also a horrible idea if John has control over these checks and Natalie has no idea what is happeninggoing on. This idea can leave room for potential fraud, intentional or not.

Another suggestion is to have all Natalie's accounting records transfer to the computer software he uses on his laptop. This one is not a terrible idea, but John would need to ensure Natalie that his computer will not get hack and numerous protections against computer viruses and malware.

One more of John's suggestion is once again another problem with the separation of duties. John wants to record all the deposits and checks for the accounting and make the monthly financial statements and bank reconciliations. Suppose given these duties along with writing a signing check can be a recipe for disaster. John could manipulate the number to put money away from himself, and Natalie would have no idea it is happening.

Improve upon those internal control suggestions.

The thoughts of hiring someone to help with many of the business aspects to succeed did cross Natalie's mind. A company is just as good as the people working for them. Even though she has a willing applicant that wants to be her accounting and help her in her need is great. 90% of what John is proposing to Natalie has a major red flag and damage written all over it. If Natalie is seriously considering letting John join in on her business, many of these suggestions will need to be adjusted.

The first suggestion where it concern having the money store in the car got to go. Natalie should invest in a safe to put both checks and cash. The safe needs to be somewhere in the shop where it is accessed available to them both. Another point is that when making a bank deposit, they should work out a specific schedule with a date and time as to when and whom will be making that bank drop. Comment by Dr. Self: Significant grammar problems here.

Moving on to the other suggestion about having control over writing and signing checks. This idea is another no-no. John needs to understand his role and place in the company; the business belongs to Natalie. Any final decision needs to be run through Natalie's approval, especially if it has to do with money coming out of her business. It is not his job to decide how much he will be compensating; that duty is for the owner.

The suggestion of John using his laptop was not bad, but it did need to meet some requirements to get to that approved level. However, a better approach to the situation would be that Natalie purchase a separate computer/laptop for the business, she still can install the specific software that John is proficient in. Comment by Dr. Self: Do not end a sentence (or a phrase) using a preposition.

On the Final suggestion for helping Natalie, John is requesting full control over all financial recording. Natalie needs to set John straight about his and her roles if she does hire him. Natalie could also look into getting a bookkeeper, which separates the accounting duties from the recording duties.

V. CC8 – Credit Decisions

Financial position review on Curtis’s Coffee

Curtis is Natalie's friend who owns his coffee shop; he approaches Natalie to buy one of her fine mixers. However, Curtis has an issue. He cannot purchase it fully and will not be able to pay the rest of the amount for the mixer within 30days and want to be placed on a line of credit instead. Looking at Curtis's finances would aid in Natalie coming to the right decision. Natalie needs to ask Curtis to take a look at his income statement. Needing to know the overall health of his business to help decide. She can calculate his working capital by subtracting current liabilities from current assets and if the number looks good. That means his business can fund its operation and invest in future expenses. All content must be cited. Comment by Dr. Self: The details are vital in graduate-level work. The spacing/punctuation must be accurate. Comment by Dr. Self: Here are suggested contents for Part 1:Calculations you should perform on the statements are: • Working Capital = Current Assets – Current Liabilities • Current Ratio = Current Assets ÷ Current Liabilities • Inventory Turnover = Cost of Goods Sold ÷ Average Inventory • Days Sales in Inventory = Days in the Year ÷ Inventory Turnover Given the type of business, it is unlikely that Curtis would have a significant amount of accounts receivable. Positive working capital and a current ratio of greater than 2 is an indication that the company has good liquidity and will be more likely to be able to pay for the mixer. The inventory turnover and days sales in inventory will provide additional information—the days sales in inventory will tell you how long, on average it takes for inventory to be sold.

Credit Alternatives

Natalie has the option of putting Curtis on a payment arrangement. He can make the payment twice a week instead of the one-time payment in the 30-day after a specific amount used as a down payment. By doing it this way, she gives Curtis the mixer while and also at the same time securingsecures her finances.

Credit Card Acceptance

As we move further into the future, we can see that paper/prints are gone, and everything is becoming more technical. It started with the newspaper. There is not any newspaper company printing anymore. Finding one News-Press is rare, now everything is in high tech. For example, in some restaurants, they do not have a paper copy of the menu; everything is electronic, even down to payment.

Another example would be rent or mortgage. There is numerous online payment portal for paying. Many places not accepting cash or checks, but they want debit and credits; it is a lot more convenient to use this and makes people go about their transaction in a more quickly and efficient manner. There are only probably less than 23% of people in the world sticking to cash for the point-of-sale transaction—leaving the other 77 % using credit, a much larger target market.

Credit cards have several added benefits; when consumers are low on debit/cash, credit is always an option and is more convenient. It is a lot safer in our consumer's eyes to walk around with a credit card because the debit card is hard-earnt cash versus credit card is a line of credit and can easily be a dispute. It is just a piece of plastic. Natalie can use a credit card system to directly inputs the information needed without manually doing it. However, there are some disadvantages of using credit. A customer can dispute it on their statement with the bank without any warning and potential harm for Natalie's business. Even though it has these drawbacks, the advantages outweigh the bad, so Natalie should accept credit cards to generate a lot more business.

VI. Conclusion

Natalie had the opportunity that many individuals are still trying to accomplish, having a successful business. Sometimes the best business ideas are not about what can make the most money but rather something that gives great pleasure. Natalie's love for baking, especially cookies with her grandma, took her on a quick road to success. Taking that entrepreneurship course back in college help with the inevitable of her starting a business.

Natalie created a corporation and have the opportunity to be a supplier for a well-known food distributor. All this success did not come easy for her though, she needed to have all the right financial information and tracking system for inventory to avoid an unnecessary loss. Natalie's growth also called for other help, which in return have her going over the internal authority among her and the employees once again to ensure compliance and prevent fraud. Natalie also had to deal with payments arrangement to help somebody purchase her fine mixers due to products becoming desirable enough to the consumers. The request had Natalie evaluating the need to accept credit cards and issuing credit.

Cookie Creation's business moves relatively quickly, and the numerous suggestion that doing this case study did not come from personal experience. These suggestions had research and knowledge from the course on managing and maneuver the business financial system. If these scenarios were ever to occur in the real world, they could be something that Natalie can consider—having the research to back them up.

References Comment by Dr. Self: There are still formatting and content corrections needed here in the reference list.As a graduate-level learner, you must undertake the additional research necessary to become fully familiar with all aspects of proper formatting here.The Purdue University Global Writing Center provides comprehensive guidance for you to be able to apply appropriate formatting, as necessary, to all of your graduate writing efforts.

Bragg, S. (2020, December 27). Where do dividends appear in the financial statements? Retrieved January 23, 2021, from https://www.accountingtools.com/articles/where-do-dividends-appear-in-the-financial-statements.html.

By, W., & Stevens, C. (2020, September 09). Periodic vs. pPerpetual iInventory mManagement. Retrieved January 22, 2021, from https://www.business.org/finance/inventory-management/periodic-vs-perpetual-inventory-management/.

Carbajo, M. (2009, December 22). The Dos and Don'ts of Extending Credit to Customers. Retrieved January 16, 2021, from https://www.allbusiness.com/the-dos-and-donts-of-extending-credit-to-customers-13632208-1.html. Comment by Dr. Self: You must use all references as citations in the body of the paper

DiPietro, J. (2020, August 10). Income Statement vs. Balance Sheet vs. Cash Flow: What's the Difference? Retrieved January 22, 2021, from https://www.fool.com/the-blueprint/income-statement-vs-balance-sheet-vs-cash-flow/.

How do small business owners actually make their financial decisions? Understanding SME financial behaviour using a case-based approach. (n.d.). Retrieved January 15, 2021, from https://www.tandfonline.com/doi/abs/10.1080/13215906.2018.1428909.

Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2019). Accounting: Tools for business decision making (7th ed.). Hoboken, NJ: John Wiley & Sons.

Milano, S. (2019). What Is the Difference Between Supplies & Inventory? Retrieved from AZ Central website: https://yourbusiness.azcentral.com/difference-between-supplies-inventory-12869.html Comment by Dr. Self: Eliminate the blue color.

Open a Business Bank Account. (2019). Retrieved from United States Small Business Administration website: https://www.sba.gov/business-guide/launch-your-business/open-business-bank-account.

Wood, M. (2020, November 20). Starting a Small Business Partnership: Everything You Need to Know. Retrieved January 16, 2021, from https://www.fundera.com/blog/small-business-partnership. Comment by Dr. Self: Do not use the retrieval date unless the source will change for certain over time.