The Guillermo Furniture Store Scenario

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Individual Assignment By Percy Pelaez FIN/571 February 09, 2011 John T. Opincar, DM(c) CPA

The Guillermo Furniture Store Scenario Abstract Accounting provides professionals and companies important guidelines, to make financial decisions and maintain accurate accounting and financial information. Managers use the different accounting reports to determine if the company is performing well, losing or winning money. All that companies need are the reports on how to balance sheets, income statement and the budget. Balance Sheet and Income Statement The balance sheet is a snapshot of the financial status of an organization at an instant of time (Emery & Finnerty, 2007, pp. 27-27) and Income Statement reports the income, expenses, and profit (or loss) for a firm over a specific interval of time (Emery & Finnerty, 2006, pp. 27-27). Statement of Cash Flows Indicates how the cash position of the firm has changed during the period covered by the income statement (Emery & Finnerty, 2007, pp. 27-27). Our first question is, how could Guillermo the performance reports in his decision-making process? Guillermo Navalez, owner of the furniture company, needs to use the following reports: Through the use of budgets he may estimate the total production of each product, direct and indirect material, direct labor, price unit, and revenues. With this information, the furniture company is more able to determine the future financial consequences. Mr. Navalez, needs to analyze the companys balance sheet and identify company assets vs. liabilities and

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The Guillermo Furniture Store Scenario shareholders equity. It is important that he know beforehand the status of the company cash, account receivables, inventory, and account payables, income taxes payables, wages payables, and others for the next 12 and 24 months. The different financial statements involved with participants include: For example the statement of cash flow, provide information for operating, investing, and financing activities. Entering more detail, this is a Dairy product company, producing and selling milk in regular Gal, 30% market share, but the expiration time is seven days. Considering this, we sell, but when product rotation is slow, we have to throw away the product lost. Our marketing department identifies a new target- people, consumers of Milk that prefer expiration times more than seven days. The marketing department submits a proposal to the finance department, requesting money to invest in this new project. The finance department

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needs to use the financial statement, Income statement report to explain the net revenue, the cost of sales and gross margin for this new product. The company balance sheet, indicates our assets, account receivables, short-term investment and in the section of liabilities, detailing about account payables, and short-term debt. Another aspects is the Cash flow, this statement explains how much the company has to operate, financial, and investing. After reviewing our financial reporting, our marketing department will receive the money for new commercial projects. This example tries to explain how the financial report works in a company and how it not only involves financial or accounting departments, but it also includes marketing, sales, production, and other areas of the company Ethics It is important in every company private or public, accounting professionals, and for other professionals, like to real estate agents, bankers, doctors, and more. Some American businesses

The Guillermo Furniture Store Scenario do not work properly, with false statements; manipulating revenues or losses, trying to pay less taxes for Government treasure, or writing a bad Performance Reports, or wrong Balance Sheets. Our experience in the last 10 years is evidence of unethical actions on behalf of companies and external audits firms. One of the most notorious cases here in the Houston Energy Business is Enron. This is the most popular example of unethical actions that were practiced in the company (Enron) and Audit Firm (Arthur Andersen). Also Mr. Guillermo may determine the project budget and figure the numbers in sales, operational cost, utilities, overheads, and others.

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The Guillermo Furniture Store Scenario Conclusion

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The element of accounting is helpful in determining if the company headed in the right direction, determining if we are making money and if our company is profitable. Income statement and cash flows bring companies other element, for projected revenues and expenses. It is crucial for every business, no matter if the company is in furniture, energy, health care, dairy products, services, banks, outside or inside United States.

The Guillermo Furniture Store Scenario References Emery, D. R., & Finnerty, J. D. (2007). Corporate Financial Management (3rd ed.). Upper Saddle River, New Jersey: Prentice Hall

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ACC/561 Accounting

June 29, 2009

Sonora, Mexico is recognized by many people as a gorgeous place to retreat however, its a big furniture manufacturer located in North America. Guillermo, a furniture maker has constructed custom furniture for many years close to his Sonora, Mexico residence. This area also had a significant stock of lumber for the variety of chairs and tables created by his business and in addition labor was inexpensive, and he priced his hand-crafted goods at first-rate for the eminence they represented. In general, existence was great for Guillermo until the 1990s when new competitors entered the market pushing Guillermo to make some important decisions for the survival of his company. (University of Phoenix Guillermo Furniture Scenario).This document will identify how Guillermo can use budgets, performance reports, and how ethics can assist and influence him in his decision-making. This document will also identify what accounting information is most relevant for Guillermo to consider when making decisions.

The Guillermo Furniture Store Scenario

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Reviewing historical facts of Guillermos budget and performance give insight to business practices responsible for company success and failure for example, purchase and production habits can be analyzed for then effectiveness in customer response and studying these habits reveal ways the company negotiates demand for their products and services. The companys budget demonstrates how company resources will be allocated to meet these demands, and if demands are met efficiently and excess resources exist, the budget identifies discretionary funds for potential investments. A satisfactory performance report is the result of a well planned budget and low performance. Indicated in the report is opportunity to implement adjustments for improving operations. Evidence of satisfactory reports is current guidance for future success.

Ethics is based on the concept of what reasonable people of society would do when faced when like circumstances. In business the concept of ethics also lends a higher perception to professionals. Ethics in the profession of accounting enables users of financial information to have confidence that its valid. Companies are routinely audited to ensure adequacy of internal control systems, and ethics dictates that internally weak control systems be addressed and adjusted in a fashion to strengthen company security. For example, it would be unethical for a large company to enable the same department who physically handles the money, to also physically handle the companies check book. The ethically sound adjustment to make in this example would be to ensure that these departments are separate. Lenders and investors rely on financial information, expecting it be ethically sound. Accounting procedures are expected to conform to generally accepted accounting standards, and the ethics aspects of these standards

The Guillermo Furniture Store Scenario ensure information and financial statements are fairly stated. Any information found to be unfairly stated is reported to information users for them to make the appropriate decisions accordingly.

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It is our best professional opinion that all financial information is relevant to the decision making process. The question lies with the users of the information and their intent therefore, generally speaking the sales revenue section of the income statement is of high importance. This sections current tear information can be used to create next years production budget. The current years operating expense section of the income statement can be used to create next years expense budget. Income statement also gives indication as to what earnings per share investors can be paid in dividends and the statement indicates annual net income to be utilized for the companies going concern.

The balance sheets current assets section is an important indicator of the companys most liquid resources. This information can assist a decision on cash conversions. Inventories in this section can give insight to future sales volumes. The balance sheets investment section is a satisfier for eternal users that the company is dedicated to its future growth, encouraging them to invest. The (balance sheets liability) section gives insight to the companys ability to negotiate its debt, also encouraging lender and investor participation.