ACC 100 Chapter Notes - Chapter 3: Accounts Receivable, And In The End..., Promissory Note

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blackraccoon425

4 Feb 2016

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An event is a happening of consequence to an entity(different types of economic events that affect an entity ex. Inventory purchased from supplier, sale is made to a customer etc) External event - interaction between the entity and its environment ex payment of wages to employee or hiring a new sales manager are external events. Internal event - occurs entirely within the entity ex the use of a company"s equipment and resources. Include two types of events - first is any external event which involves the exchange of assets and liabilities between the entity and any external parties ex. Paying utility bills, selling merchandise to customers etc. Second is any internal event where the effects on the entity can be reliably measured ex. Using materials and equipment to manufacture a product, incurring losses due to natural disaster etc. An event/business activity occurs in a business, it is reflected in the books (financial statements)

Related Questions

PLEASE ANSWER THE FOLLOWING QUESTIONS IN DETAIL

1. What is the duty of the auditor after the issuance ofthe financial statements?

2. Under what circumstances can an additional paragraphbe issued in an unqualified opinion? Where is this additionalparagraph presented in the auditorâs report?

3. When there is a group audit with a sharedresponsibility or when an auditor relies on the work of anotherauditor, what reference is contained in the audit report and whichparagraphs contain the reference?

4. Is it possible for the auditor to issue two differentopinions in the same year on the same financial statements? If yes,give an example?

5. What must be done by the auditor if internal controlsare found to be ineffective?

6. What are the opinions that can be issued by theauditor on the internal control report?

7. List 10 terms that can be used when performingsubstantive tests, ex. Trace, review, etc.

8. Give 2 examples of substantives tests for each of thefollowing: Inventory, A/R, A/P and cash.

9. What type of audit procedures are performed by anauditor? Why are they performed?

10. Why are auditors required to retain auditdocumentation?

11. What are audit working papers? Who owns thesedocuments? These papers must be kept confidential. Can they ever bereleased to other parties?

12. How long is the auditor required by the PCAOB toretain the audit working papers of public companies? Of privatecompanies?

13. What is required of an auditor for the varioussubsequent events?

14. What two criteria must be met for the financialstatements to be adjusted for a subsequent event?

15. What is the auditorâs responsibility after the endof field work but before the financial statements have been issued?After the financial statements have been issued?

16. What reports are filed with the SEC by publiccompanies? Under what circumstances are they filed?

maroonferret151

Assignment #2– Case Study: Forecasting Financial Statements & Ratios Due Sunday Week 5

100 Points

Students will construct a set of forecasted financial statements and calculate a set of financial ratios for a start-up business.

Note: Please read the documents related to forecasting financial statements under Documents & Resources in Week 4. Additionally, search online for information regarding forecasting financial statements. [Don’t skip this step! It will provide background context and insight into what you’ll be doing for this assignment.] You will notice that there are many methods to use to forecast financials. Some are quantitative while others are qualitative. Often times, a mix of the two are used. There is no one exact way to perform forecasting.

For the purpose of this assignment, you will be relying on the directions given under ‘Forecasting Assumptions’ to complete the Excel workbook.

Case Overview

Janelle Higgins has decided to start her own event planning business (JH Events) in the upcoming year. She believes that she has an innovative business model and is seeking a business loan. Therefore, Janelle is in the process of putting together a business plan. As part of her business plan, Janelle must include forecasted financial statements for the first 5 years. The forecasted financial statements to be included are: Income Statement, Balance Sheet, and Statement of Cash Flows. Janelle must also include a set of calculated ratios along with an overall assessment on the projected health of the company.

Forecasting Assumptions

First year sales are projected to be $150,000 and grow 3% for the next two years and 5% in year 4 and 5.
Cost of sales are projected to be 45% of revenue in the first year and is expected to grow at the same rate as sales.
Advertising expenses are projected to be 4% of each year’s projected revenue.
Janelle will need to rent equipment for the events she puts on. She has an agreement with a rental company for a flat rate of $500 per month and is sufficient to cover all of her estimated events. Starting in Year 3, she expects to be able to handle more events and the rental rate will increase to $750 per month.
Janelle plans to start off by hiring 2 people to work the events with her. Each person will be paid $100 per event and is expected to work 4 events per month. After Year 3, Janelle plans to hire 2 additional people. (At this point, each person will be paid $100 per event and is expected to work 3 events per month).
Office rent is estimated to be a flat rate of $1,200 per month.
Utilities for the rented office space are estimated to be $300 per month.
The office space Janelle plans to rent is unfurnished. She plans to purchase $15,000 worth of furniture and fixtures at the beginning of Year 1. The furniture and fixtures will have a useful life of 15 years. Janelle will also need to buy some computers and other office equipment that she will purchase for $10,000 also at the beginning of Year 1. The office equipment will have a useful life of 5 years. Both the furniture and fixtures as well as the equipment will be depreciated on a straight-line basis (Assume zero salvage value for calculations). HINT: Fixed Assets – Accumulated Depreciation = ‘Net’ Fixed Assets
Janelle is asking for a 3-year bank loan for $60,000 to be funded on Day1 of Year 1. The estimated interest on the loan is 3% (assume simple interest). She will pay the loan back in $20,000 installments starting in Year 2. Interest is due at the end of each year and paid in January of the following year. (Assume interest is paid on the principal balance still outstanding at year-end).
The tax rate for JH Events is 35%. Taxes for the year just ended are payed in the first quarter of the following year.
Janelle will invest $30,000 of her own money and from family and friends, before the beginning of the year, to start the business. This $30,000 investment of capital is also the beginning bank balance of Year 1.
Schedule of expected year-end balances of selected accounts:

Year 1

Year 2

Year 3

Year 4

Year 5

Accounts Receivable

10,000

12,000

8,000

6,000

10,000

Accounts Payable

2,000

4,000

5,000

6,000

9,000

Customer Deposits

1,500

2,000

3,000

4,000

5,000

At the end of Year 2, Janelle will purchase an insurance policy to help cover the business. The policy has a term of 3 years and coverage starts at the beginning of Year 3. The policy costs $12,000.
During Year 3, Janelle plans to personally invest $10,000 of additional capital into the business.

Chart of Accounts

All accounts listed here should be included in your financial statements.

Cash
Accounts Receivable
Prepaid Insurance
Furnitures & Fixtures
Equipment
Accounts Payable
Customer Deposits
Interest Payable
Taxes Payable
Bank Loan
Capital
Retained Earnings
Revenue
Cost of Sales
Advertising
Equipment Rental
Wages
Office Rent
Utilities
Insurance Expense
Depreciation
Interest Expense
Income Taxes

marckaski

Can you please summarize what this is saying? It is part of the "TheTop 10 reasons to Fix the FASB's Conceptual Framework"

10. Role for Transactions

Traditionally, great respect has been paid in financial accounting to the entityâs own transactions as reliable sources of information about its assets and liabilities. We speculate that this tradition has roots in the tight rela- tionship between financial reporting and internal control, specifically the fact that an accounting system is the first line of defense against improper transactions. The companyâs own transactions may be sparse, even impoverished, sources of useful information. Far more information resides in the multitudes of transactions exe- cuted by other entities.

Can it be wise to constantly look inward and backward at past one-time events that no longer reflect current con- ditions? For example, could investors who bought shares of Wal-Mart in the 1970s or Enron in late 2000 predict current cash flows from these investments using only their original costs? While their original transactions were evi- dence (although incomplete) of probable cash flow poten- tial at the purchase dates, much more information content resides in recent transactions involving other entities. The same applies to all other assets and liabilities as well.

Suppose the goal is to infer the distribution of red and white marbles in an opaque jar by drawing a sample. How useful is a sample of only one marble? And how useless is it to infer the mix in todayâs jar based on a past sample of one marble from a jar that existed weeks, months, or years ago? We find no rational justification for acting as if useful information is provided by continuing to report the results of an entityâs historical transactions.

We urge the Boards to break the constraining tie between a companyâs financial statements and its unique experiences that may or may not be representative of eco- nomic truth, even at the time they happen.

Who can say an assetâs original purchase price really represented its market value at that date? It was only one event in the population of similar transactions, and thereâs no valid reason to believe it was executed exactly at that distributionâs mean. Instead, a sincere search for reliable financial representations leads to considering the much more useful facts inherent in the many transactions engaged in by others.

The consequence has to be more reliable and useful financial reporting.

chocolatebadger165

ACC 100 Chapter Notes - Chapter 3: Accounts Receivable, And In The End..., Promissory Note

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