Southern New Hampshire University
Peyton Approved is one of the upcomingcompanies that has ventured into production of food for the dogs. Thecompany produces a variety of dog foods which depends on the age ofthe dog. The Company has been operational for three months and thedemand for its products is increasing. Due to the increasing demandfor these dog products, the company has decided to diversify intovarious variety of dog foods that would ensure satisfaction to thecustomers. To this end, the company primary purpose is to manufactureand distribute all hypoallergenic and natural foods for the dogs. Themain aim of this memo is to request for a loan facility for theexpansion of Peyton Approved. In this prospect, the memo unveils theaccounting system that has been used by Peyton and its effectivenessin governing the finances within the company. The memo looks intoissues such as the internal controls, the operational strengths andweakness of the company and some of the vital opportunities that thecompany has for its growth.
Overview of the Company’s Accounting System
On the accounting system of Peyton Approved,the financial reports and statements are prepared quarterly. The mainreason for this quarterly reporting is to ensure that the company isaccountable for the transactions done. Additionally, Peyton is stillan upcoming firm hence the cost of preparation of financialstatements would be low and the whole preparation would be easy andfast. As it stands, the accounting system that Peyton has adopted isthe accrual basis of accounting. Hence all the expenses of aparticular financial period must be charged against the revenues ofthe same period (Arnold, 2014). Thecompany does this to align itself with the recommended accountingstandards that is outlined in the GAAP. This accounting systemrecognizes the transactions as and when they occur. Hence on thepurchase of goods, the delivery of invoice would construe to being atransaction. It would not wait until the cash is received but it willbe recorded once the transaction has taken place i.e. the delivery ofinvoice. The main reason why the company is not using cash basis isbecause it does not conform to the GAAP and hence the firm would notbe seen as going concern. All the assets of the firm are depreciatedat straight-line basis since they are deemed to have a low salvagevalue in the end of the active life. one of the ways this accountingsystem supports the responsible practices of the company is that itallows for recording of prepaid expenses and accrual expenses whichis essential for tracking down how the funds have been used withinthe firm.
AccountingProcess and Internal Controls for Cash
Peyton Approved Company has substantialstrategies that it has put in place to make sure that the accountingsystem is active and appropriate. Firstly, it has ensured that itemploys qualified professionals within the firm who are responsiblefor handling the accounting system. Notably, it has integrated thenotion of employing professional accountants with 3 years’experience in the field of accountancy and the right academicqualifications (Brigham, & Houston, 2012).Additionally, the management has taken it upon their obligation to beresponsible of maintaining the accounting standards outlined andmakes sure that every personnel is geared towards meeting theseobjectives.
In trying to make a profound internal control,Peyton Approved Company has instituted high level of checks andbalances through the separation of duties within the institution. Inthis prospect, the management has put it in such a way that those whorecorded the cash transactions do not receive the cash. Additionally,there are various stages of approval of cash within the firm. The toplevel management must be alerted and they must append their approvalbefore disbursement of any cash from the company. Thirdly, the firmhas instituted in its policy, the job rotation where employees do notstay long at the job position to create a platform of no fraudulentactivities (Melicher, & Norton, 2013).The remittance of cash is done in such a way that those who receiveit are different from those who records into the books of account.
Resultsof Operations and Strengths and Weaknesses of the Company
The current financial standing of the companyis in good shape. The company made sales revenue =f $ 60,221 duringthe last quarter. This was a 23% increase from the previous salesvolume, an indication that the firm is indeed on the growth side. Thecost of sales was quite less amounting to only $ 157.30. The onlyamount that was quite big in terms of expenses is the notion overheadcosts which were amounting to $ 27,897.33. On the account of thewhole context of expense management, the company decided to findprofound strategies of reducing these overhead expenses (Brigham,& Ehrhardt, 2013). The company is at thebest position to meet its short term financial obligations asconnoted by the current ratio of 8.13. It only means that the firmcan meets it current financial needs using its current assets ineight folds. The company also recorded a net profit margin of 53.44%which is above the industry average. The weakness that the companyhas according to its financial statements is the notion of hugeoverhead expenses.
From the financials statement, the company isseen to be moving in the right direction. With high profits realizedin the last quarter, it points out to the fact that firm would yieldhighly in terms economic growth now and even in the near future.Given a good financial base, Peyton Approved is able to make goodsprofits and sustain itself in this market. The fact that company canhave such a high profit margin makes it have the opportunity to growexponentially and be on the competitive edge (Nobles,Mattison, Matsumura, 2014).
In conclusion, the main objective of this memois to unveil the financial standing of Peyton Approved Company withthe motive of seeking finances for expansion of the same. The companyis seen to have a good financial standing owing to the highprofitability and good corporate governance. The company has a goodopportunity to grow if it has substantial funds to expand itsactivities.
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Brigham, E. F., & Houston, J. F. (2012). Fundamentals offinancial management. Cengage Learning.
Melicher, R. W., & Norton, E. A. (2013). Introduction tofinance: markets, investments, and financial management. WileyGlobal Education.
Nobles, T. L., Mattison, B. L., Matsumura, E. M. (2014). Horngren’sfinancial and managerial accounting (4th ed.). UpperSaddle River, NJ: Pearson Education, Inc.
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