I have been called on to provide a review of the financial performance of Flower and things with commentary on issues of accounting relevance. In addition to that, I have also some guidance for you that may help you in successfully managing the book keeping and accounting affairs of your firm. 31st October 2008, marked the end of the fiscal year 2007-08, bringing an end to what has been a fruitful year for the business, when compared with the first year of operations whereby the business suffered a hefty operating losses, normally associated with start up firms.
In this scenario, 2007-08 has proved to be an year of rapid growth and consolidation. Some Key balance sheet figures are presented below: Another important element worth highlighting is the trading figures for the two sections of the business. While the young plants section attracts more volume of sales, the spread on the garden tools section is higher as indicated by the mark up of 100%. The firm needs to approach this with a two pronged strategy, whereby it focuses on volume sales in both sections while at the same time concentrating on keeping the high margins intact.
This is only possible is the company
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Given this fact, I found it prudent to assume that with approximately the same usage every year, these would last another three years from the start of the business. (BPP, 2006) Sale or Return transactions also need to be highlighted here. Sale or return transactions involve the delivery of goods from a third party for onward sale. If the sale is executed, the selling company receives a commission from the total proceeds.
If there is any inventory unsold at year end, it is deemed “returned”. Proceeds of the sales are counted as cash received, with a corresponding income recognized for the commission and a liability for the proceeds payable back to the company for whom we are acting as agents. (Wood, 1990) It is also a known fact to me that in the near future, your good self intends to go into a partnership arrangement with your good friend and part time worker Rose Thorne.
Bear in mind that where partnership arrangements bring with them advantages such as pooling of skills, greater access to capital and smooth operating of the firm in case one partner is unable to attend work due to any reason, they also have the disadvantages of dilution of 5 ownership and control, the need to share profits, operating problems created by distrust and disagreements between partners and last but not least, the problem of decision making being made less rapid and less flexible as more opinions are involved.
(BPP, 2007) Another issue, for future reference, is the need to have a proper set of accounting records. These consist of the six books of original entry (Purchases day book, sales day book, sales returns day book, purchases returns day book, cash book and general journal) and the three ledgers (purchases ledger, sales ledger and general ledger). These allow for the preparation of trial balances and then for a full set of final accounts.
The advantage of such a concrete and extensive system of record keeping is that it allows firms to record each transaction in a systematic manner and ensure that financial prudence is achieved for mismanagement of accounting records precludes the ability of the firm to actively assess itself on its performance, deal with the tax authorities in a confident manner and gain finance from the financial services sector or its suppliers as they are not aware of the firm’s financial position.
(FTC, 2008) Conclusion: While operations and total balance sheet footing has improved considerably, it is worth mentioning that as a firm, Flower & Things stands where it started from. 2008-9 will prove to be a testing year as it will reveal whether the firm witnesses an appreciation in its value and whether this value as a whole consistently exceeds the original investment by the Proprietor. To facilitate this, a proper set of accounting records is a need of the hour.