Financial of Brookside Dairy Limited

📄 Words:	837
📝 Subject:	Financial Management
📑 Pages:	3
✍️ Type:	Essay

Introduction

Brookside Dairy Limited is a dairy products company based in South America. The gap in the provision of a wide range pasteurized dairy products created the need to form a dairy company in the area hence the formation of Brook Dairy Limited. The primary line of business of the company is the production and sale of daily products. Brookside Dairy Limited is a sole proprietorship entity owned by Brookston family. The owner raised capital from note payable, savings, and bonds payable.

Challenges small businesses face when preparing the face in maintaining accurate and timely financial statements

This small business lacks a well built structures and policies as in the case of large corporations. Besides, the company’s work is likely to be done haphazardly thus leading to loss of audit trail. Lack of structures in an organization creates disorganization in various internal processes. Inadequate documentation reduces the authenticity of the financial reports generated. A common challenge faced by small organization is lack of proper record keeping of various transactions carried out. Besides, there is likelihood that incomplete financial reports will be prepared. This also creates loss of audit trail. Considering the size of the businesses and the nature of how the businesses are run, application of the accounting standards is a key challenge when preparing the financial statements. There is a possibility of inconsistencies in applying the standards or application standards wrong. In addition, the challenge faced by this small business is that the owner does not have adequate skills and time to manage the businesses and maintain the books of accounts on a regular basis.

Chart of accounts

A chart of accounts is a summary of all general accounts maintained by a business. For instance, codes starting with ‘1’ are assigned to assets, ‘2’to liability accounts and capital, ‘4’ to operating revenue accounts, and so on until all classes of the general ledger accounts are coded. The tables below show the chart of accounts of the entity.

Asset accounts

Code	General ledger account
1005	Cash
1010	Accounts Receivable
1015	Merchandise Inventory
1020	Supplies
1025	Prepaid Insurance
1030	Land
1035	Buildings
1040	Accumulated depreciation of plant and machinery
1050	Equipment

Liability accounts

Code	General ledger account
2005	Notes Payable
2015	Accounts Payable
2025	Wages Payable
2035	Interest Payable
2045	Unearned Revenues
2055	Mortgage Loan Payable

Accounts for owner’s equity

Code	General ledger account
2095	Brookston capital
2099	Brookston drawings

Operating revenue accounts

Code	General ledger account
3015	Revenue from sale of company products and services

Operating expenses account

Code	General ledger account
5010	Salaries Expense
5015	Wages Expense
5045	Supplies Expense
5065	Rent Expense
5070	Utilities Expense
5078	Telephone Expense
6005	Advertising Expense
7010	Depreciation Expense

Non operating losses, gains, revenue, and expenses

Code	General ledger account
8015	Interest Revenues
9020	Gain on Sale of Assets
9050	Loss on Sale of Assets

The audit trail is improved through classification of the accounts into allocation codes and groups. Besides, it promotes analysis of the financial statements provided.

Opening entries to set up the accounts

Brookside Daily Limited

Balance sheet statement as at 1^st February 2013:

ASSETS		Amount ($)
Current Assets
	Cash	105,000
	Petty Cash	5,000
	Temporary Investments	500,000
	Inventory	1,505,000
	Supplies	190,000
	Prepaid Insurance	70,500
	Total Current Assets	2,042,500
Investments		1,800,000
Property, Plant & Equipment
	Land	270,500
	Land Improvements	320,500
	Buildings	900,000
	Equipment	1,105,000
	Total fixed assets	2,105,000
Intangible Assets
	Goodwill	535,000
	Trade Names	1,101,000
	Total Intangible Assets	1,325,000
Other Assets		13,000
	Total Assets	3,621,500
LIABILITIES
Long-term Liabilities
	Notes Payable	120,000
	Bonds Payable	1,900,000
	Total Long-term Liabilities	2,201,000
STOCKHOLDERS’ EQUITY
	Capital	1,637,500
	Total Liab. & Stockholders’ Equity	3,754,500

The balance sheet is prepared based on the assumption that the business commences on 1^st February 2013. To start up the business, the owner will require a total capital amounting to $3,754,500. The owner will raise $1,637,500 and the remaining will be obtained by using long term debt facilities amounting to $2,030,500.

Brookside Dairy Limited

Trial balance as at 1^st February 2013:

Account	Debit	Credit
Cash	9,500
Petty Cash	600
Temporary Investments	51,000
Inventory	245,000
Supplies	21,000
Prepaid Insurance	9,600
Investments	170,000
Land	31,500
Land Improvements	35,300
Buildings	790,000
Equipment	1,100,000
Goodwill	355,000
Trade Names	1,150,000
Other Assets	19,000
Notes Payable		101,000
Bonds Payable		2,050,000
Capital		1,715,000
Total	3,716,000	3,716,000

Forecast Monthly Cash Flow Budget Statement for the Year 2013
Particulars	Start up	Feb	March	April
Estimated Sales Units		1000	2000	3000
Sales Revenue		25,500	51,000	76,500
Cash Inflow
Accounts Receivable		25,500	51,000	76,500
Initial capital	1,637,500
Total (A)	1,637,500	25,500	51,000	76,500
Cash outflow
Accounts Payable		11,200	22,400	27,500
Worker wages		13,300	13,300	13,300
Factory Rent		8,300	8,300	8,300
Electricity and Utilities		1,420	1,420	1,420
Other Admin expenses		1,020	1,020	1,020
Sales Promotion		4,120		4,120
Total (B)	447,600	39,360	46,440	69,010
Net cash (A) – (B)	240,400	-13,860	4,560	7,490
Opening balance		240,400	226,540	231,100
Closing Cash	240,400	226,540	231,100	238,590

Conclusively, the business is likely to breakeven within a year due to strong investment rationale that the owner of this business has formulated in the business actualization.