One of the measures of success in any business is profitability. All successful managers and business owners must have an understanding of how to assess the profitability of a company. This is done through the use of accounting.
By working through the accounting cycle, you will understand how money flows through a company and what other components are included in the assessment of profitability and financial stability. Using this information can also help you determine whether or not the organization can afford to stay open employing current practices. The accounting information helps you determine what types of changes might need to be made to allow the organization to become profitable if it is currently struggling financially. This process also helps you understand the level of commitment to attention to detail that is required in a successful business venture.
In the accounting workbook, you will use course-provided information to 1) analyze business transactions in accordance with industry standards and regulations to determine their effect on the financial well-being of the organization, and 2) create and use financial statements to assist in the assessment of company success
To do this, you will follow the business transactions for a six-month period from that initial stage of analysis and recording, through the reporting process. These transactions will include the initial setup of the business, sales, purchases, making payments to vendors, paying store employees, and managing debt. You will prepare financial statements that will allow you to assess how profitable the business is.
This part of the final project addresses the following course outcomes:
Apply the accounting cycle to business transactions for communicating financial data
Interpret financial statements for informing business decisions
Analyze the steps of the accounting cycle for their impact on the success of a business
Your dog, Peyton, has severe allergies and cannot have the usual store-bought dog treats. You have been making homemade treats for him that are all-natural and hypo-allergenic. Over the past year, you have been making and selling these treats out of your home and have been quite successful. You now have an opportunity to open your own dog treat bakery. You have decided on a corporate form of business and have named your company “Peyton Approved.”
This final task will require you to follow the business transactions for a six-month period from that initial stage of analysis and recording, through the reporting process. You will use this information to compose a memorandum to the bank detailing the results of operations as communicated in the financial statements you have produced based on the business transactions for the period.
For this part of the final project, your completed workbook will consist of journal entries for each transaction and posting of transactions to account ledgers. You will develop a trial balance from ledger balances and adjust revenue and expense accounts as necessary to ensure that revenues and expenses are reported in the appropriate period under the accrual accounting method. The adjusted trial balance will be used in preparation of the income statement, statement of owner’s equity, balance sheet, and statement of cash flows. After preparation of financial statements, closing entries will be entered to transfer earnings to equity and prepare temporary accounts for the new accounting period.
These workbooks will prepare you for the final part of the project, which continues with ratio analysis and a memo, which contains an overview of the company’s accounting system, a discussion of the results of operations, an analysis of what those results mean, and a discussion on potential changes in operations. This memo will be used as part of a loan package to request additional funding for potential expansion in year two.
Specifically, the following critical elements must be addressed:
1. Accounting Cycle
a) Identify the steps of the accounting cycle and provide a description of each step.
b) Analyze the role each step plays in the success of a business.
c) Analyze how the omission of a step could impact the success of a business. What strategies could be used to avoid this?
2. Accounting Workbook
a) Record all journal entries. Be sure that all information is recorded accurately.
b) Post entries to appropriate ledger accounts. Ensure all information is posted accurately.
c) Prepare unadjusted trial balance. Ensure unadjusted trial balance is prepared accurately.
d) Interpret trial balance and make appropriate end of period adjustments.
e) Post adjusted entries and prepare the adjusted trial balance.
f) Apply adjusted trial balance and prepare financial statements.
g) Annotate the financial statements. Determine the purpose of each statement.
h) What does each financial statement tell you as a business owner? What decisions/changes in operations will you make based on the results reported in your statements?
i) Close all temporary income statement accounts and create closing entries.
j) Prepare the post-closing trial balance for the next accounting period.
k) Cancel any applicable temporary adjusting entries and prepare reversing entries.
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