Running Head: ACC 308 a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a 1
ACC 308: Final Project Notes to Financial Statements
Southern New Hampshire University
April 20,2022
ACC 308 a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a 2
The financial notes present a review of accounting practices relating to diverse areas such as
the management of depreciation, management of supplies, management of inventory and long-
term debt. The information that has been used is for the 2017 year ending financial statements and
proforma statements to make predictions of company expansion in 2018.
• Managing Depreciation – The straight-line depreciation method is adopted by Peyton
Approved for computing property and equipment-related depreciation. Under this method,
the same depreciation amount of the cost of an asset is assigned to the depreciation
expense account for an asset’s useful life (Salehi et al., 2020). The deprecation amount in
the income statement stands at $ 677.86. Thus, there is a 56 % increase over last year. The
proforma statement has revealed a depreciation expense balance worth $ 2142.86. This
increase is due to the purchase of equipment worth $15,000 for the new store.
• Managing Supplies – The business uses high-quality baking materials. The price of the
supplies keeps on fluctuating. The market price of flour is steady, but any change can
impact Peyton Approved expenses. In 2017, the business incurred expenses worth $
18852.19 relating to supplies expenses. In 2018, the expenses relating to supplies are
expected to increase to $ 28,222.48 (Chen & Tseng, 2021). The business develops strong
associations with its suppliers to ensure that it can avail supplies at the most affordable
price. There is an opportunity for the business to deploy a forecasting system that can help
in breaking down customer demand. The insight can help the business to have an accurate
number of supplies to meet customer needs.
• Managing Inventory – In Peyton Approved, the periodic last-in-first-out (LIFO)
inventory method is used. It is assumed that the last inventory item will be the first item
that will be sold. By employing such an inventory method, the company incurs a higher
ACC 308 a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a 3
cost of goods as compared to the first-in-first-out (FIFO) method. In 2017, the business
had $ 1238.07 in merchandise as well as consignment inventory. In the year 2018, it is
expected that its merchandise inventory will be $ 229.27. In 2017, its inventory turnover
ratio was 5.41 %. However, there is further scope for improving the ratio. By maintaining
a better inventory turnover ratio, it will be possible for the Peyton Approved business to
effectively manage its inventory and minimize the associated costs (Chen & Tseng, 2021).
It is a necessity to carry out periodical inventory counts and checks so that the company
can make sure that the reported figures match the actual figures. Giving high priority to
inventory management is necessary since it will help the company to avoid unnecessary
expenses due to expired food materials. a
• Long-term debt – In June of 2016, the Peyton Approved business acquired a five-year
loan at the annual rate of 7.5 %. In the following year, the company acquired a note
payable at a 6 % annual rate which was to be paid in full by February 01, 2019. Under the
proposed expansion of the business in 2018, it will take a long-term debt of $ 15,000 for
purchasing new equipment for its new store. On the basis of its current sales, long-term
debt is essential since it will enable the business to expand and meet customer needs. As of
2017, the business reported a decent income of $ 175,476.18. Even after introducing
additional departments, it will be able to maintain a positive net income. As per the
proforma income statement, the net income of the business will be $ 74,036 after opening
its new store. The current financial reporting shows that Peyton Approved is in a strong
position to fulfil its long-term debts. a
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References
Chen, T. K., & Tseng, Y. (2021). Readability of notes to consolidated financial statements and
corporate bond yield spread. European Accounting Review, 30(1), 83-113.
Salehi, M., Bayaz, M. L. D., Mohammadi, S., Adibian, M. S., & Fahimifard, S. H. (2020).
Auditors’ response to readability of financial statement notes. Asian Review of Accounting.
