Running Head: ACC 308 l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l 1
ACC 308: Final Project Notes to Financial Statements
Southern New Hampshire University
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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 goods as
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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. l
• 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. l
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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.
