Peyton Approved is a bakery specializing in the making of all-natural hypoallergenic dog treats. Many dogs suffer from allergies especially those found in regular dog food as a result the demand for all natural hypoallergenic dogfood is high. Peyton Approved began as a home business and will like the opportunity to expand. The purpose of this memo is to provide an overview of Peyton Approved’s accounting process and to request funding to expand this business.
Overview of the Company’s Accounting System
Peyton Approved uses the double entry accounting system. The double entry accounting system means that for every transaction an account is debited while a corresponding account is credited. This allows for balance between asset and liability accounts. The main advantage to using this type of accounting system is overall organization, which makes preparing financial statements easier. In addition to using double entry, Peyton Approved uses the accrual basis of accounting which means that revenues are recorded when they are earned and
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expenses are recorded when they occur. This is used to provide an overall better picture of company profits as well as financial position. Accounting Process and Internal Controls for Cash Peyton Approved follows the guidelines under GAAP and are committed to provide ethical and relevant information regarding business finances. The accounting cycle is followed with each step recorded accurately to ensure proper financial statements. Entries are made as soon as they occur and statements are produced every three months. Internal control of cash is essential. The main way this is controlled is by separating duties so no single person has control over the entire cash process. Other methods that are in place are safeguarding assets, ensuring employees follow policies, promoting operational efficiency, and ensuring accurate reliable accounting records. Results of Operations and Strengths and Weaknesses of the Company Peyton Approved’s net sales reported an operating income of $60063.40 for the first three months of operations. Sale increased by $5000 each month, which shows a sales growth of 66.7% by the end of the period. Peyton Approved’s current ratio is 3.79 while the industry average is .60. A current ratio of 1.50 is considered normal for most business. Therefore, Peyton Approved’s has a current ratio that is too high. This would indicate that the company is too liquid and therefore is not using its assets effectively” (Nobles, Mattison, & Matsumura 2014). A way to change this is to increase current liabilities. The debt-equity ratio is .36, which is way below the industry average of 2.23. A low debt-to-equity ratio indicates lower risk and shows that Peyton Approved is able to repay any debts. Analysis and Opportunities Overall Peyton Approved is doing well especially for only being in business three months.
Debts are low and revenue is growing. Although sales continue to increase every month, Peyton Approved could benefit from lowering its current ratio. This can be done by lower assets and increasing liabilities. For example, Peyton Approved could lower the current asset cash by paying off its notes payable of $10000 therefore increasing a liability.
A brief summary of our accounting process has been included as to request a loan for expansion. Peyton Approved feels strongly about providing allergy-suffering pets with quality all natural products. An expansion would allow this bakery to meet the needs of even more concerned per owners looking to provide the best for their pets. As the owner of Peyton Approved, I would greatly appreciate a meeting to discuss our options.
Sincerely,
Lisa Bell
Owner of Peyton
Approved
1. What is the difference between a. and a. To me, Kurt Warner, through his actions and behaviors, sits in the competent manager quadrant. The definition of a person who is a competent manager is someone who is good at building teams and getting results through others. (Huges, Ginnett, Curphy p. 90 2009) Kurt Warner does just that on many occasions.
The fourth segment is dog treats and claims 18% of the market share for total dog food. While they have a wide variety of ingredient...
Looking at the individual ratios seen in exhibit 1 and comparing it to the industry average shown in exhibit 2 gives a sense of where this company stands. Current ratio and quick ratio are really low and have been decreasing. For 1995, the current ratio is 1.15:1, which is less than the industry average of 1.60:1, however to give a better sense of where this stands in the industry, as seen in exhibit 3, it is actually less than the average of the bottom 25% of the industry. The quick ratio is 0.61 is less than the industry is 0.90. Both these ratios serve to point out the lack of cash in this company. The cash flow has been decreasing because, it takes longer to get the money from customers, but the company still needs to pay for its purchases. Also, the company couldn’t go over the $400,000 loan limit, so they were forced to stretch their cash.
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