Question 1: What information will Fuller need to manage the business? Classify thus information in two categories: accounting information and non-accounting information.
The content of financial reports can be divided to accounting and non accounting information. According to Ahmed Belkaoui and Alain Cousineau (1977), accounting information is defined as quantitative, formal, structured, audited, numerical and past oriented material. While non accounting information is defined as qualitative, unaudited, narrative and it is future oriented prose. For accounting information, it can further categorized into 4 different categories: 1. Operating information
2. Financial accounting
3. Management accounting
4. Tax accounting
1.) Operating information
This is the information needed on day-to day basis for the organization to conduct their business. In addition, operating information constitutes to the greatest amount of accounting information and it can serve as basic for financial and management accounting. Example of operating information: employees’ payroll, sales, outstanding balance from customers, inventory and so on. In the Kim Fuller’s case study, operating information that needed to be recorded is: i. Employee’s payroll (2 grinding workers and 1 driver), ii. Invoice and delivery order to customer or former employer, chemical firms. iii. Operating expenses (Electricity, petrol and transport maintenance). iv. Inventory of bottles.
2.) Financial accounting
Information like this is geared toward the external users whom have no control towards the preparation of reports or access to the underlying details, for example: the government, creditors, banks, shareholders, public and etc. To ensure uniformity, the information reported is subjected to a set of ground rules and prepared under generally accepted accounting principles (GAAP). As for the case study, the information needs to be recorded under financial accounting as below: i. Amount owed to the sources of these bottles (creditors) ii. Checkbook records
iii. Record of the costs of the items of plant and equipment owned by the business iv. Record of the business’s mortgage and balance
v. Record of owners’ equities
3.) Management accounting
In sharp contrast to financial accounting, this information is intended to serve the specific needs of management. This is because company’s managers are required to conduct strategic planning/ budgeting, controlling and implementation. As such, specialized reports, customized data, budgets and other data are needed which generally not reported for external users. In short, management accounting is prepared based on the management prerogative.
4.) Tax accounting
Tax accounting focuses on tax issues which include all activities related to filling for tax returns and planning for future tax obligation. As such, Kim Fuller is accountable to provide accurate calculation of profit and loss on yearly basis by using the financial accounting technique as a point of reference.
Non Accounting Information
From the case study, the non accounting information as below: • Operation for plastic bottle grinding business begins in Nov 2006 • Mandatory deposits for all beverage bottles
• Readily supply of material
• Acquired 1 used truck & 3 trailers
• 2 grinding machines ( 1 new & 1 used)
• For maintenance: Supplies & parts were purchased
• Personal Computer
• Contracts were secured with 2 local bottling companies • Employees were hired for the operation
• Regular deliveries of pulverized plastic to Fuller’s former employer by Feb 2007.
Question 2: See what you can do to draw up a beginning-of-business list of the assets and liabilities of Fuller’s company making assumptions you consider useful. How should Fuller go about putting a value on the company’s assets? Using you values, what is the company’s opening owners’ equity?