Accounting Treatment: Fuller Plastic Grinding Company

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When doing business information is crucial for day-to-day operations management and for the formulation of long-term strategies. Business information can broadly be classified as accounting and non-accounting information; leaders should have access to quality, reliable, and timely information when making business decisions. In the case of Kim Fuller and Zimmer, the following information will be required for effective business management:

Accounting information

Fuller must be vibrant enough to know the most competitive price that he is supposed to sell his final products to his customers. It is through the price that he will be able to calculate his profit margin (profit margin is calculated by taking the difference between the cost of a product and the selling price).

Expenses incurred in the business are information that the entrepreneur will need to have; the number of expenses incurred in the conversion process will determine the final profit that he will get from the business. Fuller will need to enact cost management strategies that will enable him to know the cost drivers in his company and make such decisions that will assist in minimizing the costs of the business. In the balance sheet, some of the information that Fuller should understand include debtors, creditors, and capital. In debtors, the manager will be interested in the number of people owing him some funds as well as the amount owed. On the other hand, the manager will be interested to know the amount of money he owes to his suppliers. His movement of capital and assets will also be of importance. Information affects business decision making; when making decisions managers should ensure that the policies/strategies made enable the business to take advantage of the prevailing business environment and mitigate against any business risk or threat.

Non-accounting information

When doing business, it’s is of importance to consider the prevailing business conditions; the entrepreneur will be considering the competitors and how they are handling the business. Such information will assist the company designs its strategies in light of other businesses in the same line operations. Political, social, and ecological factors are other parameters that the company should consider; the company is likely to be affected by such factors. In the event that the country has some political instability, the business will be affected, Fuller needs to understand such issues. Non-accounting information can be sourced from national news, newspapers, articles, research firms, external and through research and development department in the organization. When they have been gathered, they should be vetted for quality and reliability.

Taxation affects both the accounting and non-accounting part of the company, Fuller should always be on the toes updating himself with the situation on the ground. In the event that there are changes in the system, the management needs to understand and know the policies that he should implement to cope with the change.

Assets and liabilities accounts

Fuller can manage his assets, liabilities, and capital, using a balance sheet;

Fullers Opening balance sheet
Assets Liabilities
Grinding machine and
Computers 65,000
Warehouse/Buildings’ 162,000
Cash 50,000
Capital 165,000
Liabilities 112,000
275,000 275,000

With the above balance sheet, Fuller can be able to manage its inflow/growth, outflow/decrease inequity, assets, and liabilities.

Determination of profit and loss

When determining the profits or loss payable, Fuller has to equate his expenses. Accounting is on an accrual basis; Furry must learn how the matching concept of making accounts operates. According to the method sales made during a certain period of time forms the total revenue for the period. The purchases, opening stocks, and closing stocks are adjusted to calculate the gross profit, (gross profit= sales less cost of goods sold). The gross profit expenses that have been incurred in the period are deducted to get the net profit. When calculating the net profit, Fuller should be sensitive to the expenses that have been incurred pertaining to services given in previous periods (outstanding amounts) and the amounts that have been paid in relation to a future period (advance payments).

With time the business will get some value from the assets it has accumulated as well as the goodwill it has attained from being in the business. When making its books, it should be sensitive to such adjustments. The value of a company is composed of the tangible and intangible assets that the company can accumulate. Fuller should be doing a yearly valuation of his assets to ascertain and record the real value that his business is worth.

According to international accounting standards, businesses in an ongoing line should be making their accounts on annual basis; this means that Fuller should be making his final books yearly. The fact that the books are produced on a yearly basis does not mean that the only time that Fuller should be looking at the books is at year-end. He should be having periodical analysis which might be daily, weekly, or monthly; it is from the figures that he will be able to get the end-year balances.

Business changes to keep the business moving

When doing business, there are different events that lead to change in the business assets, liabilities and equity; Fuller has to be careful on how to handle the issues. The changes will be as follows:


Changes in assets can result from an addition, depreciation, a valuation, or disposal; Fuller must notice any of the above changes and make necessary adjustments in the books. When an asset has been bought, the manager should debit the asset’s account; this means that the company has gained an additional asset. In the balance sheet (unless there has been disposal), the balance sheet will show increased assets. Another way that assets increase is through the increase in debtors; debtors increase when the company sells to its customers on credit. An increase in debtors means that the current assets shown in the balance sheet will also increase. When debtors pay their dues, the amounts recorded in the accounts as debtors reduce; this is another change that Fuller should be noting from his accounts.

Changes in cash at hand and cash in the banks are other areas that Fuller needs to be interested in; the manager should note the changes and record them in the accounts as required. The most important thing to note is that the net effect of additions and deductions on assets is what goes to the accounts (final yearly accounts).


The liabilities of the company are likely to increase when it makes some purchases on credit; this means that the company has engaged in a contract that allows it to get goods from suppliers but pays for them at a later date. Another reason why the company can have increased liabilities is when it gets a loaned capital; when activities have been financed by external sources; it means the company must cater for the amounts in the future; this becomes an amount payable and forms part of the liabilities in the customer’s account.

Reduction in liabilities means that the company has paid some of the amounts it owes to its creditors; in the books the net effect of, liabilities or creditors created during a certain period is what is recorded.

Owners’ equity/claims

Change in equity can result from an additional cap and retained earnings (increase in equity) or drawing (reduction of equity). Fuller should always be sensitive to the changes that are likely to increase or decrease in his equity. An increase in capital comes when the directors’ makes some drawings from the business other than salaries, bonuses or dividends declared at a certain period of time according to the company’s policies. When recording drawings in the balance sheet, Fuller should less the amounts from his capital to arrive to owner’s capital. An addition to owners capital, results from additional funds from the directors; fund added might come from personal sources or retained earnings. Fuller may decide that instead of taking his salaries from the company, he ploughs it back for more business; at that case he is making additional capital.

To keep accurate, genuine, fair, and sound financial accounts, Fuller should be sensitive to changes in assets, liabilities, and equity. The net effect of increase and decrease on the accounting parameters should be the figures recorded in the financial accounts as they give the true standing of the business.

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