Sample Accounting Research Paper on You Are an Entrepreneur

You Are an Entrepreneur

Accounting practice remains an important element in businesses as it helps businesses to maintain cash flow, and formulate sound accounting principles that promote accountability. It is important to include this element when venturing into entrepreneurship since most entrepreneurs are faced with poor financial skills in the business environment. In order to demonstrate this skill, the research below will show the various accounting aspects that need to be considered when venturing into entrepreneurship. The business that will be used in this case is a retail store.

In a normal business environment, a retail store is used to sell various products, such as green vegetables, dairy products, and other fast moving consumer goods. These will be the main products that will be sold in the facility, while at the same time the store will offer laundry services to the surrounding community members. These products will be placed under a 5000 sq feet roof building, with cooling facilities to store the dairy products and other green vegetables, while the rest will be placed on the shelves for people to access with ease. To ease the movement, customers will be directed to various areas by staff, with the following staffing plan expected to meet staff requirements.

1 Retail Manager

The retail manager is needed to oversee the operations of the business.

2 Customer relationship executives

The customer executives are needed to handle queries directed to the company.

4 Cashiers each handling different rows

The cashiers are needed to help in billing customers, and in processing payments through other modes such as Visa and MasterCard.

1 Accountant

The accountant is needed to oversee the tallying process of the revenue in a daily basis. He/she will also oversee wage issues, procurement and also that suppliers are paid, and the business is compliant with the accounting rules.   

1 Technician for the A.C and refrigerators

The technician is needed to ensure that refrigerators and A.C systems are working as expected to reduce spoilage.

8 Shelf attendants

The persons are needed, as they will direct customers coming into the retail store to purchase items, and to assist in answering customer queries on behalf of the business.

2 Luggage Handlers

The handlers are needed to help in loading and directing heavy products on to customer’s cars, and to load and store products procured by the company into the stores.

5 Security Guards

The guards are needed to maintain the premises security. The placement shall be as follows.

2 Guards at the main entrance – check cars for security and gather any intelligence in instances where the cars maybe carrying suspecting luggage.

1 Guard at the retail store entrance

2 Guards at the retail store.

1 IT administrator for the IT system

The person will be needed to maintain the Point of Sale system, by administering passwords and safeguarding the entire system.

3 laundry attendants

1 attending to customers

1 overseeing the washing of cloths

1 overseeing the ironing process.

The above business will be a limited company. It will ensure that essential services are provided to the surrounding community to ease the lives of the members. It will also offer employment services for the people and on the other hand generate income for the state in terms of taxes to sustain a conducive business environment. This is because the tax remitted will enable state officials to offer services to the business community and the people at large.  

            Besides this, in order to illustrate the financial activity of the business, a complete overview will be shown through a chart of accounts. A chart of accounts is a listing of available accounts and the role they play in checking the cash flow within a business (Barber and Gaskil 195). It is a document that helps give a complete overview of the financial transactions in an orderly way for easy recognition (Narayanan 113).

Chart of Accounts

 ASSET ACCOUNTS
  
 Current Assets
10014Cash in hand
10025Accounts receivable
10096Savings
10045Other receivables
10067Investments
10068Payroll account
10055Prepaid interest
10095Supplies
  
 Fixed Assets
40095Furniture
40067Vehicle
40031Building
40057Land
40099Equipment
40093Accumulation depreciation – Furniture
40010Accumulation depreciation – Vehicle
40011Accumulation depreciation – Building
40012Accumulation depreciation – Land
40076Accumulation depreciation – Equipment
  
 LIABILITY ACCOUNTS
50010Accrued expenses
50018Sales tax payable
50013State tax payable
50413Income tax payable
50126Staff benefits payable
50952Land payable
50917Equipment payable
  
 EQUITY ACCOUNTS
60023Capital
60045Earnings
  
 REVENUE ACCOUNTS
  
70075Sales – Product A
70067Sales – Product B
70086Sales – Product C
70072Sales – Product D
70072Discounts
  
 COST OF GOODS SOLD ACCOUNTS
84595Product A cost
84675Product B cost
84985Product C cost
84120Product D cost
84127Labour costs
84190Electricity
84120Commissions
84193Allowances
84286Miscellaneous
  
 EXPENSES ACCOUNT
90952Advertising expenses
90032Vehicle expenses
90155Banking charges
90200Depreciation
90209Freight expenses
90204Laundry section expenses
90233Consultancy fee expenses
90199Mailing charges
90230Licenses
90302Meals and refreshments
90203Administrative
90110Fines
90111Lease/Rent expenses
90101Travel expenses
90204Supplies
90221Utilities
90222Maintenance
90112Telephone/Internet
90124Outsourcing – security services
90199Softwares/Hardware

Rationale for each account

Asset accounts:

An asset account shows the total assets (fixed and current) for a company. It shows the assets and was chosen as it will reduce instances of theft of company assets to promote accountability. On the other hand, it will help the company to source for funds during expansion and on the other hand also to enable it to report on its financial status.  

Liability accounts:

Liability is a debt that is owed to a third party involved in the business and needs to be paid. The need for the account is that it will help the business to monitor the debt that is to be paid to external entities. It will also enhance accountability as items to be paid will be verifiable. 

Equity account:

This represents the shareholding as distributed between the owners. The need for the account is that it will help distribute other benefits such as dividends to the owners. This will also help them to make good decisions on a proposed takeover, merger or acquisition.

Revenue account:

This is an important account that will help the business to be sustainable. It is chosen as it helps record the revenues gained by the business so as to help in financial reporting.

Cost of goods sold account:

This is directly connected to the costs incurred in producing certain products in a company. The rationale for choosing this account is to help the business to be able to compute the profits. This also helps in maintaining an optimum inventory level in instance where materials are used to produce certain products. An example could be the number of florescent tubes replaced on the refrigerators using the available stock in the retail store.

Expenses account:

The rationale for picking the expenses account is to monitor the expense status within the business. This is also to help in computing the profits for the business. It will also help the business to strategize on ways of reducing the expense levels in instances where expenses are too much.

The above charts of accounts will be used within the business, with the International Financial Reporting Standard being used to report the financial attributes. This is because the shareholders intend to list the company in the stock exchange, to source for funds in order to increase its presence across the globe. In addition to this, it will be easy to implement certain global financial practices, which will help the business to be compliant, as business across the globe and in various countries such as Australia, Israel, Canada and New Zealand are adopting this standard as a method of financial reporting. In line with the planned convergence between the Generally Accepted Accounting Principles (GAAP) and International Financial Reporting (IFRS) across the world (Subramani 7), it will be prudent to use the IFRS in the business to reduce non-compliance issues and bottlenecks that may occur due to subsequent migration. This will also ensure that the business is complaint with the worldwide body of financial reporting method.

Pro-forma Balance Sheet

ASSETS

Current Assets

Cash in hand                                          $236

Accounts receivables                             $645

Savings                                                   $198

Other receivables                                   $917

Investments                                            $856

Payroll account                                      $955

Pre-paid interest                                     $995

Supplies                                                  $949

Total current assets                                $5751

Fixed Assets

Furniture                                                   $655

Vehicle                                                      $700

Buildings                                                   $299

Land                                                          $100

Equipment                                                 $566

Depreciation – building                            $340

Depreciation – vehicle                              $094

Depreciation – building                            $045

Depreciation – land                                   $040

Depreciation – equipment                         $014

Total net fixed assets                                            $645

Total Assets                                              $3543

LIABILITIES

Current liabilities

Accrued expenses                                       $300

Sales tax payable                                         $230

State tax payable                                         $120

Income tax payable                                     $175

Staff benefits payable                                 $100

Land rate payable                                       $090

Equipment payable                                     $210

Total current liabilities                                $1325

SHAREHOLDERS EQUITY

Total shareholders’ equity

Capital                                                          $990

Earnings                                                       $786

Total shareholder’s equity                            $1776

TOTAL LIABILITIES AND EQUITY   $3101

Income statement

Retail store Co

Income Statement

For the Month ending October 2015

Revenues

Sales revenue                                      $550,000

Interests gained                                   $90,000

Total sales and interests                      $640,000

Expenses

Cost of goods sold                              $150000        

Administration                                    $2700

Salaries & wages                                 $240000

Electricity & water                              $1000

Rental costs                                         $4000

Advertising                                         $4000

Miscellaneous                                      $2000

Others                                                 $3400

Total expenses                                     $407100

Net Income                                         $232900

            The documents indicate the cash flow status in the retail store, with the pro-forma balance sheet and the income statement indicating the financial strengths and shareholding stock. It takes into consideration the assets and liabilities of the company including the equities. In the asset sections, the valuation reflects the correct figures while the depreciation is an estimate given after a scan on the business environment and the depreciation on similar buildings and assets within in the business locality. The assumptions made when preparing the above statements is that the growth is likely to slow down, hence the low cost of goods sold, and interests in the company.

However, in order to reduce losses and to promote accountability, the company will use some internal controls. This is justifiable, as it will reduce instances of financial manipulation and mis-use of company assets such as vehicles to reduce expenses and losses arising from tear and wear, and increased expenditure on fuel. In addition to this, the internal controls will increase accountability and assurance between the company management and employee, in that it helps to maintain a system of records to enhance accountability. These internal controls will comprise human resource controls and computer systems controls. The computer systems controls will play a role in facilitating an audit on company’s systems (Weygandt, Kieso and Kimmel 315), financial data, resources and customer information. This is an important tool as it helps a company to comply with regulatory requirements and on the other hand guide the financial management processes.  

The internal controls will be implemented in the business through various ways. To implement the human resource controls, a number of employees will be required to ascertain the company’s financial status to reduce over accumulations that will increase fraud related activities on financial data, such as manipulating financial information where employees do not verify the stated figures. In addition to this, the accountant will also verify the amounts being input into the systems.

Besides this, computer system controls will be implemented by an external party that will give privileges to cashiers and the procurement unit to ensure that unauthorized staff do not have access to input or change data. The controls will also only allow accountants, store manager and cashiers access to the financial information. However, a challenge in implementing the controls is that it will be hard for the business to ensure that third party system installers do not have access to sensitive credit card information for the customers. The company however will overcome this by implementing strict access policies that will be overseen by state detectives and fraud specialists.

The controls will enhance transparency however the business is also expected to encounter stiffer rules from government agencies. In this, the government is expected to tighten the regulatory laws which will impact on the business, in that there will be need to hire third party agents to streamline the business in instances where the business is expanding to newer markets. Apart from this, the regulatory environment will also enhance accountability, by favoring sound practices in order to reduce pre-disposing elements such as reputation and market risks.

Besides this, other legislative attributes in the accounting field such as the Sarbanes-Oxley Act has tightened the market. The Act has increased costs of operating businesses in that it has made it mandatory for companies to hire external auditors and softwares to monitor financial and audit aspects, with the systems and audit services presenting additional costs to new entrepreneurial ventures. In addition to this, the act makes it mandatory for this type of businesses to form an oversight board tasked with auditing which is a constrain in terms of budget and resources.

In order to continue operating in certain markets, the company intend to comply with the act by reducing staff, especially cashiers and outsource the finance component to an audit firm such as KPMG, to handle all accounting, financial and auditing issues. This will therefore also affect the decision-making, as part of the decisions will be initiated by an external party. This will affect the managerial acumen, and affect financial decision making as the component will be handled by a third party.   

Works Cited

Barber, Stephen R, and Vickie Gaskill. Community Associations: A Guide to Successful Management. Chicago: Institute of Real Estate Management, 2008. Print.

Narayanan, V. Implementing Sap® Erp Financials: A Configuration Guide. New Delhi: Tata McGraw-Hill Education, 2010. Print.

Subramani, R V. Accounting for Investments: Volume 1. Singapore: John Wiley & Sons (Asia, 2009. Web.

Weygandt, Jerry J, Donald E. Kieso, and Paul D. Kimmel. Financial Accounting. Hoboken, NJ: Wiley, 2010. Print.