i would like a business class document filled out. It has a specific template that it follows. Along with the template i will be sending the expectations and rubric, with two documents with necessary resources to be used to complete and fill out the template. Need this done by 5:30 PM EST

FINANCE & ACCOUNTING – SENIOR ACCOUNTANT ANALYSIS

Due Date

Week 5

Note: While representative of possible situations faced by SunsTruck Sunglasses, all scenarios in this assignment are fictional.

Real Business

Large discount retailers like Target and Walmart employ large teams of Finance and Accounting professionals to help measure and understand the financial health of the business. Financial and accounting information helps these businesses make educated financial decisions, such as whether or not to continue partnering with a retail supplier. While often smaller businesses, it is equally important for these retail suppliers to use financial and accounting data to make educated decisions, such as the best approach to gaining additional funding.

Your Role

This week, you’ll assume the role of Senior Accountant with SunsTruck Sunglasses.

 

Senior accountants take ownership of reporting costs, profitability, margins and expenditures for a given business. They use the principles of accounting to analyze sales information, create financial reports, make recommendations about the financial health of the company, and more. They are also responsible for training junior accounting staff.

 

For the last six months, SunsTruck has partnered with the discount retail store to run a pop-up sunglasses stand in their stores for a big summer promotion. Due to the high customer purchase rate, the store has requested stock for five additional stores. SunsTruck needs to increase its capacity to meet the additional demand. In order to do so, SunsTruck needs additional money.

In this assignment, you will need to help determine which type of financing option is best for your company and train your junior accountants on the accounting cycle and financial statements.

 

INSTRUCTIONS

Step 1: Financing

The junior accounting team has assembled a Financing Report that (a) offers three options for securing the additional funds required to meet the new order; and (b) details the criteria Shaun, the owner of SunsTruck, would like you to consider when choosing one of the three options. Based on this report:

· Identify which financing option you think is the best option for SunsTruck to pursue given Shaun’s constraints. Please explain the rationale for your decision.

Note: You should complete Steps 2 & 3 after reading the material in Week 5.

 

Step 2: Accounting Cycle

A junior accountant is working to get everything in order for the new financing and has come to you with a question about what do next in the accounting cycle.

· Read the email the junior accountant sent you and identify the best next step to take in the accounting cycle. Please explain your reasoning.

 

Step 3: Financial Statements

A potential investor has been identified, but before it is willing to commit, it has requested information about SunsTruck’s current debt from the junior accountants.

· Identify the correct financial statement for your junior accountants that will provide the investor with the information it has requested. Please explain to your junior accountants why you are giving them this financial statement and where the debt information is located.

Name: BUS100 Week 5 Assignment 2: Finance & Accounting – Senior Accountant Analysis

Description: BUS100 Week 5 Assignment 2: Finance & Accounting – Senior Accountant Analysis

 

Unacceptable 0- 59% F

Meets Minimum Expectations 60-69% D

Fair 70-79% C

Proficient 80-89% B

Exemplary 90-100% A

BUS100-A2-1
1. Identify the best financing option and explain your reasoning.

Points Range:0 (0.00%) – 22.125 (17.70%)
Does not accurately identify financing option; explanation lacks logic and supporting information. Demonstrates no understanding of finance.

Points Range:22.5 (18.00%) – 25.875 (20.70%)
Accurately identifies financing option; explanation lacks logic and/or supporting information. Demonstrates minimal understanding of finance.

Points Range:26.25 (21.00%) – 29.625 (23.70%)
Accurately identifies financing option; minimally supports answer with logical explanation and information from the Financing Report and/or course material; OR Does not accurately identify financing option; adequately supports answers with information from the Financing Report and/or course material. Demonstrates adequate understanding of finance.

Points Range:30 (24.00%) – 33.375 (26.70%)
Accurately identifies financing option; adequately supports answer with logical explanation and information from the Financing Report and/or course material. Demonstrates good understanding of finance.

Points Range:33.75 (27.00%) – 37.5 (30.00%)
Accurately identifies financing option; thoroughly supports answer with logical explanation and specific information from the Financing Report and course material. Demonstrates excellent understanding of finance.

BUS100-A2-2
2. Identify the next step in the accounting cycle for the junior accountant to complete and explain your reasoning.

Points Range:0 (0.00%) – 22.125 (17.70%)
Does not accurately identify accounting cycle step; explanation is missing or lacks logic and supporting information. Demonstrates no understanding of accounting.

Points Range:22.5 (18.00%) – 25.875 (20.70%)
Accurately identifies accounting cycle step; explanation lacks logic and/or supporting information. Demonstrates minimal understanding of accounting.

Points Range:26.25 (21.00%) – 29.625 (23.70%)
Accurately identifies accounting cycle step; minimally supports answer with logical explanation and information from course material; OR Does not accurately identify financing option; adequately supports answers with information from course material. Demonstrates adequate understanding of accounting.

Points Range:30 (24.00%) – 33.375 (26.70%)
Accurately identifies accounting cycle step; adequately supports answer with logical explanation and information from course material. Demonstrates good understanding of accounting.

Points Range:33.75 (27.00%) – 37.5 (30.00%)
Accurately identifies accounting cycle step; thoroughly supports answer with logical explanation and specific information from course material. Demonstrates excellent understanding of accounting.

BUS100-A2-3
3. Identify the best financial statement to provide to the potential investor and explain your reasoning.

Points Range:0 (0.00%) – 22.125 (17.70%)
Does not accurately identify financial statement; explanation is missing or lacks logic and supporting information. Demonstrates no understanding of financial statements.

Points Range:22.5 (18.00%) – 25.875 (20.70%)
Accurately identifies financial statement; explanation lacks logic and/or supporting information. Demonstrates minimal understanding of financial statements.

Points Range:26.25 (21.00%) – 29.625 (23.70%)
Accurately identifies financial statement; minimally supports answer with logical explanation and information from financial statements and/or course material; OR Does not accurately identify financial statement; adequately supports answers with information from financial statements and/or course material. Demonstrates adequate understanding of financial statements.

Points Range:30 (24.00%) – 33.375 (26.70%)
Accurately identifies the financial statement; adequately supports answer with logical explanation and information from financial statements and course material. Demonstrates good understanding of financial statements.

Points Range:33.75 (27.00%) – 37.5 (30.00%)
Accurately identifies financial statement; thoroughly supports answer with logical explanation and specific information from financial statements and course material. Demonstrates excellent understanding of financial statements.

BUS100-A2-4
4. Write in a professional manner using proper grammar and spelling.

Points Range:0 (0.00%) – 7.375 (5.90%)
Writing does not meet minimal standards. Tone is not professional. Wholly lacking in logic, clarity, and/or consistent formatting. Contains many spelling and/or grammatical errors.

Points Range:7.5 (6.00%) – 8.625 (6.90%)
Writing meets minimal standards. Tone is not professional. Lacking one or more of logic, clarity, and/or consistent formatting. May contain more than 8 spelling and/or grammatical errors.

Points Range:8.75 (7.00%) – 9.875 (7.90%)
Writing is satisfactory. Professional tone is developing. Shows moderate logic, clarity, and/or consistent formatting. May contain more than 2-4 spelling and/or grammatical errors.

Points Range:10 (8.00%) – 11.125 (8.90%)
Writing is mostly good. Tone is professional. Shows logic, clarity, and consistent formatting. May contain few or no spelling and/or grammatical errors.

Points Range:11.25 (9.00%) – 12.5 (10.00%)
Writing is excellent. Tone is professional and sophisticated. Shows logic, clarity, and consistent formatting. Contains no spelling or grammatical errors.

Name:BUS100 Week 5 Assignment 2: Finance & Accounting – Senior Accountant Analysis

Description:BUS100 Week 5 Assignment 2: Finance & Accounting – Senior Accountant Analysis

NAME:

INSTRUCTOR:

DATE:

Assignment 2

FINANCE & ACCOUNTING – SENIOR ACCOUNTANT Analysis

Due Date: Week 5

Note: While representative of possible situations faced by SunsTruck Sunglasses, all scenarios in this assignment are fictional.

Real Business

Large discount retailers like Target and Walmart employ large teams of Finance and Accounting professionals to help measure and understand the financial health of the business. Financial and accounting information helps these businesses make educated financial decisions, such as whether or not to continue partnering with a retail supplier. While often smaller businesses, it is equally important for these retail suppliers to use financial and accounting data to make educated decisions, such as the best approach to gaining additional funding.

Your Role

This week, you’ll assume the role of Senior Accountant with SunsTruck Sunglasses.

What Is a SENIOR ACCOUNTANT?
Senior accountants take ownership of reporting costs, profitability, margins and expenditures for a given business. They use the principles of accounting to analyze sales information, create financial reports, make recommendations about the financial health of the company, and more. They are also responsible for training junior accounting staff.

For the last six months, SunsTruck has partnered with the discount retail store to run a pop-up sunglasses stand in their stores for a big summer promotion. Due to the high customer purchase rate, the store has requested stock for five additional stores. SunsTruck needs to increase its capacity to meet the additional demand. In order to do so, SunsTruck needs additional money.

In this assignment, you will need to help determine which type of financing option is best for your company and train your junior accountants on the accounting cycle and financial statements.

Instructions

Step 1: FINANCING

The junior accounting team has assembled a Financing Report that (a) offers three options for securing the additional funds required to meet the new order; and (b) details the criteria Shaun, the owner of SunsTruck, would like you to consider when choosing one of the three options. Based on this report:

· Identify which financing option you think is the best option for SunsTruck to pursue given Shaun’s constraints. Underline your selection:

Option 1: Equity

Option 2: Debt

Option 3: Debt + Self-Financing

Please explain the rationale for your decision.

Note: You should complete Steps 2 & 3 after reading the material in Week 5.

Step 2: ACCOUNTING CYCLE

A junior accountant is working to get everything in order for the new financing and has come to you with a question about what do next in the accounting cycle.

· Read the email the junior accountant sent you and identify the best next step to take in the accounting cycle. Please explain your reasoning.

Step 3: FINANCIAL STATEMENTS

A potential investor has been identified, but before it is willing to commit, it has requested information about SunsTruck’s current debt from the junior accountants.

Identify the correct financial statement for your junior accountants that will provide the investor with the information it has requested. Underline your selection:

Income Statement

Balance Sheet

Cash Flow Statement

Please explain to your junior accountants why you are giving them this financial statement and where the debt information is located.

1 BUS100: INTRODUCTION TO BUSINESS

 LEARN

STRAYER TALKS: FINANCE WITH SUNSTRUCK SUNGLASSES



To view captions while watching the video please click on the gear icon on the bottom right of the video. Under the Captions option please click on “None” and select “English” instead. The captions will begin playing.

 How to Determine the Best Financing Option

As we learned in this week’s Strayer Talk, businesses like SunsTruck have a number of options available to them when they are looking to secure financing in order to grow the company. It’s important to know that the best option for a business at any given time can be different based on a number of factors. Each financing option—whether it’s self-financing, debt, or equity—comes with certain benefits and drawbacks that must be carefully considered.

 

Equity Financing

Have you ever seen Shark Tank? On this hit TV show, entrepreneurs and small business owners pitch their ideas to a group of celebrity investors in hopes that they will invest money to help the businesses grow. Each business owner talks about their idea, what makes it unique, how the business is doing so far, and how financially successful it’s been. After the entrepreneurs’ short presentation, the investors, known as “sharks,” ask hard questions to see if the idea is worth their investment.

The really fun part comes at the end. Each company comes in with an investment amount it is hoping to get—for example, $150,000. If the sharks are interested in investing in the business, they will negotiate with the business owner for how much of the company they will own for that amount of money. If the business owner thinks the business is worth $1,500,000, and the shark agrees, then the shark will ask for at least 10% of the company in exchange for the $150,000. This is because $150,000 is 10% of a company that is worth $1,500,000.

Shark Tank has shown people across the country how equity financing works.

Equity is another word for “ownership.” In the real world of day-to-day business, a business often sells part ownership of the company in order to raise money. Before a business decides to give up equity in exchange for financing, it needs to consider the pros and cons. The table below is a summary of some of the most important things to consider about equity financing.

EQUITY FINANCING

PROS

CONS

·

There is no obligation to pay back the initial investment money

· There is no interest to pay

· Investments enhance the business’s credibility

· Investors may provide ideas, resources and know-how in addition to money

· Businesses give up partial ownership

· New owners mean that other people have a say in the operations of the company

· Equity is expensive relative to borrowing money – you give up a portion of future profits versus a fixed loan amount

· When profits are shared, there is no tax benefit to the business because payments or distributions to investors are not deductible as expenses on the Income Statement (interest payments on debt, however, are deductible)

Debt Financing

Debt financing is probably very familiar to you. In all likelihood, you’ve had an experience with debt in your personal life. You may have taken out a car loan or a mortgage, or opened up a credit card with a bank.

In each of these cases, you borrow money for a significant purchase with the guarantee that you’ll pay the money back over an agreed upon period of time. Typically, you agree to pay back the money with interest—the cost to you for borrowing the money.

In the same way, businesses can borrow money to finance their operations. They can take out a loan from a financial institution, open a line of credit, or—as in the case of Shaun and Rachel—get a start-up loan. Start-up loans are typically funded by community organizations or governments and offer better terms than what’s available through traditional banks. These groups offer loans with good terms because they have a specific goal in mind, such as encouraging the development of new businesses in a city.

Like equity financing, taking on debt comes with its own advantages and disadvantages. The table below provides a snapshot of what to consider when looking at debt financing.

DEBT FINANCING

PROS

CONS

· Business does not give up any ownership of the business

· There are no outside investors who can influence the direction of the business

· Obtaining debt financing is typically a less expensive process than equity financing

· A variety of lenders provide debt financing

· There are predictable payments, which can make the budgeting process easier

· There are tax benefits because interest paid on loans is deducted from sales revenue. The interest expense lowers pre-tax income, which lowers the company’s income taxes

· The money has to be returned according to a fixed payment plan that the business must make until the debt is paid off

· There are interest costs added to the loan debt

· Debt financing does not enhance the company’s credibility or image if debt gets high or out of control

· Debt may be difficult to secure for young companies with little credit history

· These arrangements may hinder cash flow because money set aside for fixed payment obligations is not available for other purposes

· Debt financing may require a personal guarantee

In order to truly analyze where debt financing is the best approach, you’ll need to be able to calculate the full amount of the loan including interest. Let’s run through an example.

 

A business has taken out a $100,000 loan and is required to make 50 monthly payments with an annual interest rate of 12%. 

To determine how much this loan will actually cost, the loan amount plus interest, you will need to calculate the amount of each monthly payment. To do so, you will need to continually factor in the reduced balance on each subsequent payment. 

You can either calculate this by hand (which we’ll show you) or you can use a financial calculator, like those on

calculatorsoup.com

. If you’d like to follow along on the calculatorsoup.com website, go to Financial – Loans > Loans > Loan Calculator > Choose a Calculation: Find the Monthly Payment. Then, input the values from our example.

The equation used to calculate the monthly payment is as follows:

 

PMT=	PVi(1+i)n
(1+i)n-1

 

· PV = Present Value, or principal of the loan

· i = Interest rate

· n = Number of payments

 

First, we need to calculate the correct interest rate to use. Most interest rates are annual rates, as in this example. But, typically payments are made more frequently than once a year. In our example, payments are made monthly, so we need to divide the annual interest rate by 12.

 

· i = .12/12

· i = .01

 

Now we have all the numbers we need to calculate the amount of our monthly payment.

 

· PV = 100,000

· i = .01

· n = 50

 
·

PMT =	100,000 x .01(1 + .01)50
(1 + i)50 -1

· PMT = $2,551.27

 

Now that we have calculated the value of our monthly payment, we can multiply it by our 50 required payments to calculate the total amount of all loan payments, the true cost of the loan.

 

· Total Amount = $2,551.27 x 50

· Total Amount = $127,563.72

 

As we’ll see, even though the business in our example is only borrowing $100,000, they are paying $27,563.72 in interest.

 

Self-Financing (or Internal-Financing)

Instead of looking for lenders or investors outside of the company, business leaders can use internal financing to fund growth and expansion. Typically, a business distributes or shares the money it makes—its profits—to the business’s owners, investors, or both. In the case of self-financing growth, a business chooses to fund new projects with its profits instead of sharing them. This arrangement works best when everyone expects that the investment will create more growth. Like the external financing options discussed above, internal financing has important pros and cons to consider.

PROS

CONS

SELF-FINANCING (OR INTERNAL FINANCING)

· Money is immediately available · There are no payments to investors or lenders, so this option avoids the risks of owing money to outside parties · This is the most flexible option · Business owners retain control of decision making · Self-financing signals strong financial health

· Self-financing is expensive because it does not involve tax-deductible interest expense · This option does not immediately increase the amount of money in a business because it does not take advantage of outside money; it simply uses the money already in the business · Available internal funds for new projects are often limited because cash is still needed to fund current ongoing projects and operations · Losses due to a poor investment have a more significant impact on the business

Understanding the unique benefits and challenges of each of these approaches to securing financing is important to making good business decisions. When a business decides that it needs to look for money to help it grow, it’s important to consider various facts that relate to each of the pros and cons. For example, if a business makes more money during particular seasons, it may need to figure out whether it will make enough money each month to meet the monthly payments on its debt during an off-season. This level of attention to detail separates the great businesses from the good businesses.

Budgeting

In order to determine how much money a business may need in the future, or how much it will cost to finance a special project, it’s important to create financial plans that estimate how much money the business both earns and spends in the foreseeable future. This type of planning requires that businesses build budgets that look ahead. Budgets don’t just play a role in financial management when additional funding is needed, though. They are commonly used in businesses to manage day-to-day planning as well.

Budgeting is a five-step process: (1) preparation, (2) approval, (3) consolidation, (4) comparison, and (5) revision. Each of these steps is important to the financial health of the business.

1. Preparation: Each business unit has its own budget. The manager of the unit develops the individual budget based on her knowledge about the department, guidance from supervisors, and targets for the year.

2. Approval: Supervisors review unit budgets. Satisfactory budgets are approved. Unacceptable budgets must be revised and approved before they are submitted to the next step.

3. Consolidation: The budgets of the individual business units are combined into a master budget for the entire organization for the year. The master budget includes a profit-and-loss statement, a projected balance sheet, and a budgeted cash-flow statement.

4. Comparison: As the year progresses, actual numbers are compared to budgeted targets.

5. Revision: When the business does not achieve its budgeted numbers, the business may change its expenses, projects or programs in order to reach the targets.

By following each of these five steps, a business ensures that it has a clear, updated picture of where it stands financially and where it can expect to be at the end of the fiscal year. This prevents surprises and allows a business to make smart choices about how to spend money. When a business finds it has a shortfall, people need to make careful decisions about what programs or projects to cut. On the other hand, in the event of a surplus, the business can choose where to spend that extra money. Accurate budgeting allows a business to see into the future and make choices that will ensure its short-term and long-term financial health.

Financial Decision-Making

Making tough decisions is a natural part of business. Effective leaders face difficult choices every day. In order to deal with each of the decisions that come up, leaders need reliable frameworks to help them make informed decisions about how to best move forward. A framework is a tool that helps to organize thinking about a particular topic. A financial decision-making framework, then, is a way of analyzing choices about finances to help make the best decision based on the information available.

There are many frameworks to use to make decisions. The trick is to find the one that works best for you or to develop one that you’re comfortable with. However, there are some basic steps that you can use to inform your thinking.

1. Identify the Decision. This first step may seem obvious, but it’s important to be very clear about what the decision is. Sometimes there are complicating factors that may get in the way of the most important thing that needs to be decided. In those cases, it’s important to clearly define the decision you’re making.

2. Do Research. In this phase, you focus on gathering all of the information that could help you to make the best decision. This may include conducting online research, talking to customers, or interviewing team members or employees. It’s important to get a broad perspective to help you weigh the decision without bias.

3. Create a List of Alternative Decisions. Looking for numerous courses of action will help you to leave no stone unturned, as the saying goes. Every decision can be solved in multiple ways. It’s important to get all the possibilities out there and consider each of them on their own merits.

4. Weigh the Information. Once you have all of the possible options on the table and you’ve done your homework, you can now look at which of the alternatives makes the most sense given what you know.

5. Choose a Direction and Take Action. Having considered all of the facts, it’s time to make a decision. Be resolved and trust the work you’ve done to make the decision. This will encourage others around you to support the decision, which gives it a higher likelihood of succeeding.

6. Review the Outcomes. After you’ve moved forward, it’s important to reflect on how the decision turned out. This will provide insights about what to do next or surface lessons learned that can help you to make better decisions in the future. It’s helpful to get feedback from the people involved in the decision-making process as well.

By applying these simple steps, you’ll be able to improve the quality of your decision-making over time, repeat success, avoid making the same mistakes, and learn from past decisions.

GETTING EVERYTHING IN ITS PLACE

As we learned in this week’s Strayer Talk, the steps of the accounting cycle give businesses a reliable way to make sense of all of their financial information. Let’s take a quick look again to remind ourselves of the steps in this important process:

1. Record: Capture each financial transaction.

2. Classify: Group similar transactions.

3. Summarize: Add up similar transactions to make them easy to understand.

4. Report: Create easy-to-read reports that provide an overall look at key parts of the business.

5. Analyze: Use the information to make informed decisions about the business.

In this week’s Deep Dive, we’ll take a closer look at the last two steps of this process: Report and Analyze. During the Report phase, three main financial statements are created: the income statement, balance sheet, and statement of cash flows. Each financial statement has a specific purpose and reveals something unique about how well the business is doing. By understanding these financial reports in more detail, we’ll be able to explore how businesses use them to support their decision-making.

Income Statement

One of the most important things for a business to understand is its profitability—literally, its ability to make a profit from the products it creates or sells. There are two key factors in determining profitability: (1) how much revenue the sales of the products generate; and (2) how much it costs to make and deliver those products. The simplest way to think about the income statement is with the simple equation below:

 

Total Revenues – Total Expenses = Profit(or Loss)

 

In essence, subtract the amount everything cost the business from the amount of revenue (or income) the business earned to see the profit. If things cost the business more than it earned in revenue, the company will see a loss.

Of course, it’s not really that simple. There are different ways a business can make money, such as selling equipment. And there are also many expenses a business might incur during that same period of time. The income statement goes one step further, adding more detail so that people can understand where the key sources of income and expenses are.

To help us better understand this statement, let’s look at an example from SunsTruck. Note that when a number is negative, it appears in parentheses.

At the top of the statement, you’ll see that it clearly identifies three things: (1) the name of the company, (2) the title of the financial statement, and (3) the period of time the statement is summarizing. For this example, we’re looking at the income statement for SunsTruck for the Third Quarter (“Q3”), or the three months ending September 30, 2016.

The first category of numbers at the top is called revenues. This is the total amount of income that the company earned during this time period. You can see that there are two main sources of revenue, or income for SunsTruck: (1) sales revenue, which is the money the business earned from selling its main product, sunglasses; and (2) other revenue, which is the money the business made from other sources, such as selling old equipment. For this quarter, SunsTruck made $80,000, which is shown as total revenues.

The second area of revenue is related to the cost of earning that revenue. If you are in the service industry like a hospital or software design, this is called cost of revenues. In our example, SunsTruck sells a physical product, sunglasses, so it is called cost of goods sold (COGS). This number represents the direct cost of either making the products or purchasing them from the supplier. In the case of SunsTruck, this number is the amount of money the company spent to buy the sunglasses from brands like Oakley or RayBan that were then sold in their truck. In the third quarter, SunsTruck spent $40,000 on sunglasses to sell in their truck.

The third area of revenue shows gross profit-—total revenue minus the cost of goods sold. The amount of gross profit that SunsTruck earned this quarter is $40,000. It is the total revenue minus the total COGS ($80,000 revenue – $40,000 COGS = $40,000 gross profit). Gross profit is a very important number to know, because it is what’s left over to cover all of the business’s other expenses. If gross profit is not high enough, the company is losing money and (eventually) will go out of business. In our SunsTruck example, the business has $40,000 in gross profit to cover its remaining expenses.

Our second category on the income statement includes all of the other types of expenses that a business has. You can see two expense groupings: (1) selling, general and administrative expenses and (2) marketing and advertising. Remember, expenses are the costs it takes to keep a business going. Each group includes a number of different but related costs. Selling, general, and administrative expenses often refer to costs associated with selling a product, such as sales commissions and shipping costs, and/or administrative needs such as rent or office supplies. Marketing and advertising expenses refers to the spend on promotional activities for the product. While there are many other expense categories that businesses use, these are two of the most common.

The next area of expenses is income from operations. In this line, all expenses are subtracted from the gross profit ($40,000 gross profit – $10,000 expenses = $30,000 income from operations). This, too, is an important figure to watch because it tells us whether or not a company’s core business is profitable. For SunsTruck, its expenses were less than its gross profit so there is a positive amount of income from its operations of selling sunglasses.

The next area of expenses is other expenses. You’ll see interest expense under this category, which refers to the total amount of money spent on interest for outstanding loans the company owes. During the third quarter, SunsTruck had $500 in interest expense on its outstanding loans.

Our third category is pretax income. In this line we subtract other expenses from the income from operations to get our pretax income ($30,000 income from operations – $500 other expenses = $29,500 pretax income). We then need to account for the amount of taxes paid on this income, which in our SunsTruck example was $7,000.

Our final category in the income statement is net income. Net income shows how much money a business makes after all expenses are paid. To calculate net income, we subtract the income tax expense from the pretax income ($29,500 pretax income – $7,000 income tax expense = $22,500 net income). In the case of SunsTruck, net income is $22,500! It’s important to know that net income can be positive (a profit) if revenues are higher than the total of all expenses, or negative (a loss) if all of the expenses are higher than revenues. But watch out! Net income does not mean that you have this much in your checking account. Remember, some revenues were done on credit and the business has to wait to see its cash. Likewise, some expenses have not yet been paid, only recorded.

WHEN TO USE THE INCOME STATEMENT

The income statement is useful when you want to understand how profitable a business is. Generally speaking, a sign of a successful and growing company is a steady increase in revenue, with the difference between income and expenses getting wider and wider. This indicates that the business is making more money while controlling or even decreasing expenses.

 

The Balance Sheet

It’s often helpful to have a quick summary of where things stand, especially for your personal finances. Knowing what you own compared to what you owe to other people gives you a helpful snapshot of your current financial health. The balance sheet, also known as the statement of financial position, is unique because instead of looking at a business over a period of time, it shows where the business stands at that moment.

The balance sheet gets its name from the fact that both sides of the balance sheet have to be equal. There is a common equation that summarizes the balance sheet:

 

Assets = Liabilities + Shareholders’ Equity

 

If you think about it, this makes sense. If assets are the items a business owns or controls, the business has to have the money to pay for those things either by borrowing money (liabilities) or getting money from investors or from retained earnings (shareholder’s equity).

One thing to note about this statement is that individual accounts are shown on the left and the summary accounts are shown in the column on the right. Let’s look at a sample balance sheet from SunsTruck:

The first category of the balance sheet is assets, which includes all of the things the business owns or controls. You’ll notice there are two groups of assets: current and long-term. Current assets are expected to be used up and replaced over and over during the current twelve months. Long-term assets are items expected to last longer than one year. There can be many types in both groups, but we’ll just focus on a few of the most common ones.

In the current assets category, you have cash, accounts receivable, and merchandise inventory.

 

· Cash is pretty simple—it’s the amount of money a business currently has in the bank.

· Accounts receivable is the money that the business is owed from customers who have already purchased products on credit.

· Merchandise inventories is the value of all of the merchandise products the company has on hand but has not yet sold.

In the long-term assets category, you have SunsTruck’s truck and equipment, the total value of vehicles or other large equipment that the business owns. Many businesses also have other long-term assets like land, buildings, machinery, and patents.

Adding together a business’s current assets and long-term assets gives us our total assets ($32,000 total current assets + $68,000 long-term assets = $100,000 total assets). As you can see, the total of all of SunsTruck’s assets as of September 30, 2016 is $100,000.

The next section of the balance sheet is liabilities. This is the money that the business owes to other parties. Like assets, liabilities are divided into current and long-term groups. This lets everyone know what has to be paid over the upcoming twelve months versus what’s not due for more than a year from now.

In the current liabilities group, the first item is accounts payable. This is the total of all of the money the business owes for things it has purchased on credit from suppliers related to the creation of its products. For example, SunsTruck may purchase all the sunglasses it expects to sell in the next month from a sunglasses supplier with an agreement to pay the supplier back in 30 or 60 days.

In the long-term liabilities group , you’ll find loan categories:

· Truck Loan (the money SunsTruck owes for its mobile store) and

· Operating Loan (the money SunsTruck borrowed from a lender to provide cash for expenses, such as meeting payroll).

Between current and long-term liabilities, the total of all the money the business owes as of the given date is shown as total liabilities ($10,000 current liabilities + $60,000 long-term liabilities = $70,000 total liabilities).

Finally, in addition to loan liabilities, a business can get money from investors. This money is shown in the shareholders’ equity section. Contributed capital shows the total amount of money given by outside investors. Retained earnings is the amount of profit that the business has kept to use to grow the company instead of giving it back to the owners of the business.

As of September 30, 2016, SunsTruck had total shareholders’ equity of $30,000.

Remember how we said both sides of the balance sheet have to equal? To see that the SunsTruck balance sheet is “in balance” at this moment of time, you can compare the total assets of the business ($100,000) to the sum of total liabilities plus shareholders’ equity ($70,000 total liabilities + $30,000 total shareholders’ equity = $100,000 total liabilities and shareholders’ equity), the last line of the balance sheet. As of September 30, 2016, SunsTruck had $100,000 for both “sides”—demonstrating that the balance sheet is balanced.

WHEN TO USE THE BALANCE SHEET

The balance sheet is useful to see how healthy a business is at any particular time. It’s important to ensure that the business’s debt, its liabilities, is a reasonable size relative to assets and shareholders’ equity. If debt is growing, it may be a sign that the business is not effectively converting its investments into profits for the company’s owners.

 

Statement of Cash Flows

Many business leaders will tell you that the statement of cash flows is the most important statement of them all—and that may very well be true. In reality, if the business doesn’t have cash on hand to purchase products or pay employees, it can’t keep its doors open. Cash is the lifeblood of a business, and knowing how much of it is available is vital for success.

As we’ve learned multiple times in this course, you can pick up a lot about business from your personal life. Creating a statement of cash flows is almost identical to balancing a checkbook. You start off with a certain amount of cash and, during a period of time, money comes in and money goes out. Then, at the end of the time period, you have an ending cash balance that is either higher, lower, or the same as the cash you had when you started.

The statement of cash flows shows all of the cash entering and leaving a company during a given period of time. It’s important to know that cash is different from revenue! The revenue number from the income statement includes both sales paid with cash and sales made on credit. This second type of sale, where the business has not yet received its cash, shows up indirectly on the statement of cash flows as either an increase or decrease in accounts receivable. A decrease in accounts receivable indicates that more cash has been received than new sales made on credit. An increase in accounts receivable indicates more new sales were made on credit than cash received.

Let’s walk through a sample statement of cash flows for SunsTruck. Note that when a number is negative, it appears in parentheses.

The statement of cash flows focuses on three main types of cash activities: (1) cash flows from operating activities, (2) cash flows from investing activities, and (3) cash flows from financing activities. Let’s look at each category in turn.

The first category, cash flows from operating activities, shows all the money coming in and going out from day-to-day business operations. This includes sales, expenses, taxes paid, employees’ salaries and more.

The next category is cash flows from investing activities, which includes money coming in and money going out that is related to investments in things such as equipment or manufacturing tools. Typically, there is cash going out to pay for these investments. In this SunsTruck example, the business only spent money to pay back their investment in the truck for their mobile store.

Finally, cash flows from financing activities summarizes all of the money that is tied to activities like borrowing and repaying money or getting funds from investors by selling stock or issuing bonds. This will be a cash-coming-in category if it shows new loans or investments increasing a business’s bank account. Sometimes, however, this will be a cash-going-out category if the business is repaying loans or paying investors back by paying out stock dividends or interest on bonds.

At the bottom of the statement of cash flows there are three key numbers. The net increase (or decrease) in cash shows how much money was gained or lost in total during the time period. The amount of cash at the beginning of the period shows how much money was in the bank at the beginning of the time period. Lastly, cash at the end of the period shows how much money is in the bank at the end of the time period. This figure ties back to the cash balance reported on the balance sheet.

WHEN TO USE THE STATEMENT OF CASH FLOWS

The statement of the cash flows should be regularly checked and updated to ensure that a business has the money on hand that it needs to operate. It shows how effectively a business is using its cash to grow the business and make it more profitable.

 

Financial statements are an essential part of knowing how well a business is doing and how it can be improved. While there is a lot to learn about these statements, like many things, they will become easier to read and understand over time. By familiarizing yourself with these statements and understanding what they mean, you’ll be better able to support decision-making within your company based on the information that these accounting processes provide.

ASSIGNMENT

Financeand Accounting

Senior Accountant Analysis

1

DUE DATE

Week 5

STRAYER UNIVERSITY | COPYRIGHT © 2016. ALL RIGHTS RESERVED.

SHAUN’S CRITERIA

Hi Team,

I wanted to provide you some guidelines as you determine how we’ll finance our
expansion. Please give this careful consideration, as we need to get this right.

1. I estimate we’ll need $150,000 to increase capacity in order to stock the five
additional pop-up stands

2. We’ll need to make sure we have additional funds available to increase our
marketing efforts to stimulate demand

3. Cash flow is going to be tight, so I’d like to minimize interest payments

4. I’d like to maintain or increase our profit margins

5. Since I don’t have a lot of experience with big discount retailers, I’d like to add a
thought partner with experience in this channel

6. If we’re successful over the next two years, we’ll likely seek additional capital to
expand into more stores, so I’d like to do all we can now to enhance our
credibility

We need to move on this quickly, so I’d like an answer by the end of the week.

-Shaun

STRAYER UNIVERSITY | COPYRIGHT © 2016. ALL RIGHTS RESERVED. 2

FINANCING OPTIONS

Option 1: Equity
Raise $150,000 from a venture capital firm in exchange for 30% of the company

Option 2: Debt

Secure a loan of $150,000 at a 10% annual interest rate, to be repaid over 7 years

Option 3: Debt + Self-Financing

Secure a loan of $100,000 at a 7% annual interest rate, to be repaid over 7 years, and self-
finance the remaining $50,000

JUNIOR ACCOUNTANT EMAIL

Hi,

I’m working on expenses from the last quarter for the revised income statement, but I’m
unsure of what to do next. I grouped similar transactions to compile the following list:

How would you like me to proceed given where we are in the process? Thanks in advance
for your guidance.

Best,

Jenna S.

• automotive maintenance cost

• travel expenses

• training and development costs

• office rent

• raw material purchases

• inventory purchases

• marketing expenses

• payroll expenses

• interest expenses

• technology purchases

• office supplies expenses

STRAYER UNIVERSITY | COPYRIGHT © 2016. ALL RIGHTS RESERVED. 3

SUNSTRUCK SUNGLASSES
INCOME STATEMENT

For Year Ended September 30, 2016

REVENUES

Sales revenues

Other revenue

Total revenue

COST OF GOODS SOLD (COGS)

GROSS PROFIT

EXPENSES

Selling, general and administrative expenses

Marketing and advertising expenses

Total expenses

INCOME FROM OPERATIONS

OTHER EXPENSES

Interest expense

$778,590

$11,000

$789,590

($428,225)

$361,365

($78,959)

($55,271)

($153,050)

$208,314

($51,000)

$157,315

Income tax expense

NET INCOME

PRETAX INCOME

($55,060)

$22,500

Depreciation and amortization ($18,820)

$102,255NET INCOME

4 STRAYER UNIVERSITY | COPYRIGHT © 2016. ALL RIGHTS RESERVED.

SUNSTRUCK SUNGLASSES
BALANCE SHEET

At September 30, 2016

ASSETS

CURRENT ASSETS

Cash

Accounts receivable

Merchandise inventories

Total current assets

LONG-TERM ASSETS

Property, truck and equipment

TOTAL ASSETS

LIABILITIES

CURRENT LIABILITIES

$145,500

$468,000

$613,500

$37,500

LONG-TERM LIABILITIES

Truck loan

Accounts Payable

$28,000

$55,220

$62,280

$40,000

B+M loan $360,000

Total long-term liabilities

TOTAL LIABILITIES $479,500

SHAREHOLDERS’ EQUITY

CONTRIBUTED CAPITAL

$12,000

RETAINED EARNINGS

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

TOTAL SHAREHOLDERS’ EQUITY

$122,000

$442,000

$134,000

$613,500

Operating loan $42,000

STRAYER UNIVERSITY | COPYRIGHT © 2016. ALL RIGHTS RESERVED. 5

$75,000

SUNSTRUCK SUNGLASSES
STATEMENT OF CASH FLOWS

For Year Ended September 30, 2016

CASH FLOWS FROM OPERATING ACTIVITIES

Cash collected from customers

Cash paid to suppliers and employees

Cash paid for interest

Cash paid for taxes

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Cash paid on truck loans

$99,140

($20,000)

($529,580)

($50,000)

($55,060)

$733,780

Net cash used for investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Cash received from operating cash loan

($60,000)

$12,000

NET INCREASE IN CASH DURING YEAR

CASH AT BEGINNING OF YEAR

Net cash provided by financing activities

($23,255)

CASH AT THE END OF YEAR TO DATE $27,885

$12,000

$51,140

Cash paid on B+M loans ($40,000)