ACCOUNTING FOR MANAGERS PRBA007

ATMC Melbourne Campus

Nubairah Mushtaq S284609

ASSSIGNMENT 1
A. Franks present accounting system provides him information regarding the total
sales for the day and the overall expenditures he is incurring. This expenditure
includes his personal expenses as well as the expenses the business is incurring.
In this present accounting system Frank is not recording his sales and the costs
incurred hence the profit earned cannot be calculated. On the contrary he is
assessing the performance of his business by the amount of money he saves at
the end of each month. Furthermore this present accounting system is unable to
differentiate between Franks personal expenses and business expenses, hence
it is not recording the expenses the business is incurring individually.
B. Now Frank is planning to expand his business, and for that he will be need
following additional accounting information :
I.

II.

III.
IV.

V.
VI.

C. I
I.

II.

As Frank is planning to expand at discount retailers he needs to assess his

current sales first, through which he would be able to forecast the future
sales.
Frank is planning on taking a loan from a local bank, for which he needs to
assess the total cost he will incur for the inventory, which includes sausages,
breads, condiments and soft drinks, as well as the pushcart and other
equipment. So that he could request for that particular loan amount.
Frank should also take into account the interest rate the bank is offering him,
and how much interest he would have to pay at the end of each month
For setting up a pushcart in front of discount retailers Frank has to pay a
particular fees, and 3% of the sales of the day, when Frank has forecasted
his sales he should assess that after paying the fees and the sales
percentage how much profit he would incur if any.
Next Frank would need to decide how much he will be willing to pay his the
employees he wishes to hire.
After Frank has calculated all the costs which includes interest, wages and
the other expenses, he needs to calculate the total sales after the amount
given to the discount retailer, after which he will be able to forecast the profit
he can make, to check if the expansion would be profitable or not.
would like to give the following recommendations to Frank:
Firstly Frank needs to separate his business expenses from his personal
expenses, so that he has a clear idea of the total expenses his business
incurs.
Frank needs to adopt a formal accounting system, in which he needs to
record the sales and the costs he has incurred in a month, through which he
would have get to know the amount of profit he earns.

III.

IV.

Frank should also open a separate account with the name of his business,
which is Poppas Dogs, which would be different from his personal account as
his business is a separate entity.
Another recommendation for Frank is hire an accountant, or himself make
the three financial statements, which are the income statement, balance
sheet and cash flow statement.

Ans.2a)
Predating the sales would affect the balance sheet in a positive way, which means
the assets would increase, because there would an increase in the accounts
receivables or cash. The stockholders equity could also increase by predating the
sales by an increase in the retained earnings. Income statement would be affected
by an increase in the net income because the sales would increase. Furthermore
there would be increase in cash in the statement of cash flow, because the cash
from operating activities would increase because of cash receipts from customers.
Ans.2b)
Predating the sales would solve the problem of the bank because increase in sales
means increase in assets, with an increase in accounts receivables or cash, the
working capital would increase because of the increase in assets. Furthermore the
net income would also increase with the increase in sales, which would increase the
net income per share.
Ans.2c)
The appropriate behavior for the CEO in current situation would be to float more
shares in the market to save the company from bankruptcy, as the CEO is expecting
an increase in sales, the company would also be able to pay the dividends, and
another option for the CEO is liquidation, which is to sell some assets.
Ans.2d)
The appropriate behavior for Nadia as an employee is to show integrity in her work,
and be honest to her job. Nadia should not indulge in forging any information as this
is against workplace ethics and behavior, and could defame the company and her
own reputation.

Proposals

Net Income

Increase

Net Cash Flows

from Operating
Activities
No Effect

(i)

Cash

No Effect

(ii)

Increase

No Effect

No Effect

(iii)

Increase

Increase

Increase

(iv)

No Effect

Increase

Increase

(v)

Increase

Increase

Increase

(vi)

No Effect

No Effect

Increase

Ans.3a)

Ans.3b)
The net income is increasing in the first proposal because the COGS will decrease
when adopting the FIFO inventory system, which would result in an increase in net
income, and this is not an operating activity hence there would be no effect on cash
from operating activities, likewise management has seen that the taxes would
increase with the FIFO method but those taxes would be accounted in the coming
year, hence there would be no effect on the cash. The second proposal would
increase the net income because the depreciation amount decrease, as the life of
the asset has increased over more period of time, less depreciation means more net
income as it is deducted from the net income, furthermore depreciation is not a
cash expense neither an operating activity, hence it would have no effect on cash
and net cash flows from operating activity. Pressuring dealers for sales would
increase the net income as the sales would increase, which would positively affect
the net income, the net cash flow from operating activities would also increase
because the cash receipts would increase, and an increase in sales would result in
increase in cash. Early payment of purchases would have no effect on the net
income as sales are recorded in income statement when they are made, not when
the cash is paid. This would increase the net cash flow from operating activities as
this would increase the cash receipts from customers and payment would also result
in cash inflow, hence there would be increase the cash. Borrowing for short term to
pay off debt bearing more interest expense, would result in a decline in interest
expense hence net income would increase, this would also result in less interest
paid which would positively affect the net cash flows from operating activities, and
less cash outflow would mean an increase in cash. This would have no effect on net
income or the net cash flow from operating activities as dividends are not recorded
in the income statement or in the cash flow from operating activities schedule, but
this would result in an increase in cash as the cash outflow would decrease because
cash dividends are being substituted.