Running Head: ACC 308 f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f 1
ACC 308: Final Project Notes to Financial Statements
Southern New Hampshire University
April 20,2022
ACC 308 f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f 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 cost of
ACC 308 f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f 3
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. f
• 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. f
ACC 308 f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f 4
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.
