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Biblical Concepts of Finance and Accounting
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You will write an word essay in current APA format that focuses on how biblical concepts are related to the fields of accounting and finance. The essay must incorporate a thoughtful analysis (considering assumptions, analyzing implications, comparing/contrasting concepts) of accounting, finance, and your faith. The paper must include at least 3 peer-reviewed references in addition to the Bible and course textbook
Biblical Concepts of Finance and Accounting
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Biblical Concepts of Finance and Accounting
While the notion of a connection between religion and core concepts of finance and accounting may seem far-fetched initially, a deeper analysis and look into the religious laws and standings offers a different perspective. From such research and analysis of relevant sources, concepts such as savings, budgeting, maintenance of records, debt management, financial planning, and the importance of labor and productivity are clearly visible from a biblical perspective. This paper looks into the connection between various biblical concepts and their connection to finance and accounting.
A culture of savings
Saving is the concept and act of putting a share of income aside on purpose as a means of deferred spending. The financial reason behind the concept of spending is usually a means of reduction of costs, the creation of future cash flow, or a form of insurance. The concept of saving is fundamental in the areas of personal finance as well as business accounting. In personal finance, for example, the ability of an individual or a family to set some money aside each year during their active work age allows them to pursue a number of options in the future.
Such options include the ability to fund education for their offspring, capital for a business venture, and consumption during retirement. On the other hand, in business accounting, savings is predominantly in the reduction of costs such as costs of production, sales, and recurrent expenditures in a bid to improve the profit margin.
Biblical Concepts of Finance and Accounting
The concept of savings, as observed, is important in both personal finance and corporate accounting and finance procedures. In addition, several scriptures relate this concept to biblical teachings of savings. In Proverbs 21: 20, the bible states that “The wise store up choice food and olive oil, but fools gulp theirs down.” (Biblica, Inc., 2011) This is indicative of the wisdom of saving up for future uncertainties. The absence of such a saving culture is likened to a fool who eats up all their produce after a bountiful harvest.
In addition, Proverbs 22: 3 states, “The prudent see danger and take refuge, but the simple keep going and pay the penalty.” This implies the need for insurance and retirement plans in tandem with earlier examples as well as those provided by Rodgers and Gago (2006, pp. 129 – 131 ). Additional scriptures indicating the importance of saving include Genesis 41: 35, Proverbs 30: 24 – 25, and 2nd Corinthians 12: 14.
Debt Management
The ability to manage debt effectively is integral to personal and corporate finance and accounting. In personal finance, the wisdom to choose which form of debt is useful is critical to maintaining a level of financial wellness. Expanding on the example of the family used in the previous section, if the choice to spend the portion of income dedicated to irrelevant and depreciating purchases rather than an interest generating savings plan, the family would be in debt for a long period.
In the corporate context, a company that relies on borrowings to start and keep it afloat will always be in a losing battle and in a position of servitude (Despain, 2017, p. 409). Another key concept within the realm of debt management is cosigning, since the need to cosign implies a lack of trust between the lender and the borrower, thereby requiring a third party…..
Biblical Concepts of Finance and Accounting
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Weighted Average Cost of Capital
Week 7 reading:
In this week, you need to finish the reading of case15:
Summary of case 15:
This case is intended to serve as an introduction to the calculation of the weighted average cost of capital (WACC) of the firm.
The case provides a WACC calculation that contains errors based on conceptual misunderstandings.
Your task is to identify and explain the mistakes in the analysis. The case assumes that are exposed to the WACC, CAPM, the dividend discount model, and the earnings capitalization model.
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Knowledge of this case:
the calculation of WACC:
WACC = Kd(1 − t) × D/(D + E) + Ke × E/(D + E); where E= equity and D= debt, and t = the tax rate
calculation of Kd (cost of debt) for bond
calculation of Ke (cost of Equity):
two methods: CAPM and DDM.
WACC requires use market value rather than book value to calculate the weights.
Please read the case 15 and the case reading instruction file and answer the following questions
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Assignment of case 15
What was your estimate of WACC?
Please submit an excel work.
What mistakes did Joanna Cohen make in her analysis? Which method is best for calculating the cost of equity?
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Required Rate of Return
Stock R’s beta = 1.5
Stock S’s beta = 0.75
Consider that the required return on an average stock is 14 percent. The risk-free rate of return is 6 percent. If this is so, the required return on the riskier stock exceeds the required return on the less risky stock by how much?
The required rate of return (RRR) is the minimum return an investor will accept for owning a company’s stock, as compensation for a given level of risk associated with holding the stock. The RRR is also used in corporate finance to analyze the profitability of potential investment projects.
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Evaluating Returns and Cash Flow Streams
Overview
Solve nine problems addressing a range of issues related to valuation of stocks, bonds, annuities, and cash flow streams.
The result of a financial manager’s efforts is ultimately reflected in stock price; maximizing shareowner wealth is what finance is all about. This assessment examines the classic financial tradeoff of risk versus reward.
By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:
Competency 1. Maximize shareholder wealth.
Calculate the required return on a portfolio fund.
Calculate the required rate of return.
Compute the present values of ordinary annuities.
Competency 3. Evaluate capital expenditure investment projects.
Calculate bond evaluation.
Apply computations to explain yield to call.
Calculate yield to maturity using correct calculations.
Compute the after tax cost of debt.
Competency 5. Apply evaluation principles of various financial instruments.
Explain uneven cash flow streams.
Evaluating Returns and Cash Flow Streams
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Context
Stocks
Maximizing shareowner wealth is all about increasing the stock price. Risky investments require higher returns, so when financial managers take greater risks, the logical reaction of shareowners is to demand a higher return. How do they accomplish this? If you were a bondholder, you would require a higher interest payment, but as a shareowner, you get higher returns by lowering the stock price.
So it may appear that a business should be averse to risk because it runs counter to the notion of a higher stock price, but in fact, businesses must take risks to get those higher returns. When relatively risky ventures pay off, or when shareowners believe management can pull it off, the stock price can soar.
Bonds
It is important to examine the main categories of bonds, long-term instruments such as Treasury bonds, corporate bonds, municipal bonds, and foreign bonds. All bonds share certain common features such as face or par value, coupon rate, maturity date, and other provisions. Some bonds are sold at a deep discount and do not provide any coupon interest payments; these are called zero-coupon bonds.
Previously we have talked about the fact that the value of any financial asset should be based on the present value of its future cash flows. This holds true for the valuation of bonds as well. There are different numerical tools used in assessing and comparing different bonds such as yield-to-maturity, current yield, and yield-to-call for callable bonds.
Our analysis of bonds would certainly be incomplete if we did not consider the risks involved in purchasing different types of bonds. Interest rate, reinvestment rate, and default risks are all associated with the investment in bonds. One important observation regarding the bond markets is that they rely on several independent bond rating agencies providing continuous monitoring of the most important bond issuers.
Evaluating Returns and Cash Flow Streams
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Cash Flow
An asset’s value depends on the valuation of the after-tax cash flows this asset is expected to produce.
Questions to consider
To deepen your understanding, you are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of the business community.
Analyze some of the most important elements of the current tax laws, such as the differences between the treatment of dividends and interest paid and interest and dividend income received. How can financial managers increase shareholder value through managing tax obligations?
Examine the company you work for (if your company is not publicly held, pick a company you are familiar with), and consider the following.
Would you consider this company to be relatively risky? Does the stock rise and fall faster than the market?
What things contribute to the riskiness or stability of the stock?
What is the CAPM and security market line, and how can they be used in assessing share price?
The time value of money is defined as the math of finance for which interest is earned over time by saving or investing money. Why does time value affect almost any financial decision? Under what situations might time value matter less?
Examine the importance of bond ratings and some of the criteria used to rate bonds. Differentiate between interest rate risk, reinvestment rate risk, and default risk. How would a financial manager use bond ratings to increase the value of the firm?
Examine what is meant by the statement that a preferred stock is a hybrid between a common stock and a bond. What factors determine the value of a share of preferred stock?
Identify some of the factors that would cause you to rely more on either NPV or IRR. Does MIRR solve all of IRR’s shortcomings?
Evaluating Returns and Cash Flow Streams
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Resources
The following optional resources are provided to support you in completing the assessment or to provide a helpful context. For additional resources, refer to the Research Resources and Supplemental Resources in the left navigation menu of your courseroom.
Brigham, E. F., & Houston, J. F. (2016). Fundamentals of financial management (14th ed.). Boston, MA: Cengage.
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Assessment instructions
For this assessment, complete Problems 1–9 to apply the necessary knowledge to assess returns and cash flow streams. You may solve the problems algebraically, or you may use a financial calculator or an Excel spreadsheet. In addition to your solution to each computational problem, you must show the supporting work leading to your solution to receive credit for your answer. Note the following:
You may need an HP 10B II business calculator.
You may use Word or Excel, but you will find Excel to be most helpful for creating spreadsheets.
If you choose to solve the problems algebraically, be sure to show your computations.
If you use a financial calculator, show your input values.
If you use an Excel spreadsheet, show your input values and formulas.
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After-Tax Cost of Debt
The XYZ Inc.’s currently outstanding bonds have a 10 percent yield to maturity and an 8 percent coupon. It can issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 40 percent, what is XYZ’s after-tax cost of debt?
What Is the Cost of Debt?
The cost of debt is the effective interest rate that a company pays on its debts, such as bonds and loans. The cost of debt can refer to the before-tax cost of debt, which is the company’s cost of debt before taking taxes into account, or the after-tax cost of debt. The key difference in the cost of debt before and after taxes lies in the fact that interest expenses are tax-deductible.
Impact of Taxes on Cost of Debt
Since interest paid on debts is often treated favorably by tax codes, the tax deductions due to outstanding debts can lower the effective cost of debt paid by a borrower. The after-tax cost of debt is the interest paid on debt less any income tax savings due to deductible interest expenses. To calculate the after-tax cost of debt, subtract a company’s effective tax rate from 1, and multiply the difference by its cost of debt. The company’s marginal tax rate is not used; rather, the company’s state and federal tax rates are added together to ascertain its effective tax rate.
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Inclusions, Exclusions, and AGI Assessment 3
Overview
Apply the rules associated with inclusions and exclusions to an individual’s gross income and apply another set of code rules to determine a taxpayer’s AGI.Note: Completing a tax form requires specific steps that need to be executed in a sequence. The assessments in this course are presented in sequence and must be completed in order. Incorrect entries in previous assessments will result in incorrect entries in future assessments. Do not complete Assessment 3 until you have submitted and received faculty feedback for Assessment 2.
Understanding the ever-changing rules for including and excluding income in the calculation of a taxpayer’s adjusted gross income (AGI) for income tax purposes is a skill that is developed through practice.By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:
• Competency 2: Analyze the basics of individual income tax return preparation.o Analyze official rules and instructions to correctly calculate deductible self-employment taxes.o Interpret official rules and instructions to record correct entries on tax forms.o Apply rules and instructions to correctly compute AGI for the year.
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Context
I don’t know what to do or where to turn in this taxation matter. Somewhere there must be a book that tells all about it, where I could go to straighten it out in my mind. But I don’t know where the book is, and maybe I couldn’t read it if I found it.” — Warren G. Harding, the 29th President of the United States, 1921–1923.
About now, you may be nodding your head in agreement with President Harding’s quote about the complexity of the tax code, with its many inclusions and exclusions. What started out as a simple document, designed to raise capital to make the new nation independent from the British Empire, has evolved over the centuries and decades into a complex maze of rules and regulations.Nowhere is that more pronounced than in the rules for including and excluding income in the calculation of a taxpayer’s adjusted gross income (AGI) for income tax purposes.
Gross income is commonly defined as the amount of a company’s or a person’s income before all reductions, except that which is specifically excluded by the Internal Revenue Code, before taking deductions or taxes into account. Since not all of an individual’s personal income is subject to taxation, one must crack open the voluminous tax codebook to discover exclusions from the tax collector’s grasp.
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Question to Consider
To deepen your understanding, you are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of the business community.The primary purpose of the Internal Revenue Service is to raise revenue for the government. However, the U.S. Congress has chosen to exempt certain income from taxation, such as scholarships, gifts, life insurance proceeds, municipal bond interest, and employee fringe benefits.
• Why you believe Congress has provided these exemptions to taxpayers?
• Which of the additional exemptions would you challenge?
• Which of the additional exemptions do you agree with?
Resources
Required Resources
The following resources are required to complete the assessment.
Internet Resources
Access the following resources by clicking the links provided. Please note that URLs change frequently. Permissions for the following links have been either granted or deemed appropriate for educational use at the time of course publication. RS.gov is the homepage for the federal IRS Web site. Use the tabs at the top of the page to navigate the site. The Interactive Tax Assistant and Tax Trails are tools that walk you through a series of questions to find answers to tax questions
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This section of the Form 1040 encompasses the major components of total income and many types of nontaxable income for the filing taxpayer(s). Major components of this section include interest income, dividend income, unemployment compensation, social security benefits, and other types of income received by the taxpayer(s). Licensed under a Creative Commons Attribution 3.0 License.
FORM 1040: ADJUSTED GROSS INCOME
Filing taxpayers can deduct additional items from total income for purposes of computing AGI. These items are termed “for AGI deductions”, or “above the line” deductions. The line refers to the AGI line on Form 1040. The major items covered in this section of the Form 1040 are student loan interest, health savings accounts, moving expenses, self-employment taxes, early withdrawals from savings, and deductions for alimony paid. Licensed under a Creative Commons Attribution 3.0 License.
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Resources
J. K. Lasser Institute. (2015). Your income tax 2015: For preparing your 2014 tax return.
Hoboken, NJ: Wiley.J. K. Lasser Institute. (2014). Your income tax 2014: For preparing your 2013 tax return.
Hoboken, NJ: Wiley.Drake, A. E. (2015, January 5). Reducing your taxes before the end of the year. Mondaq Business Briefing.Vento, J. J. (2014, March).
Beating the tax man. USA Today, 142(2826), 58–59.
Ashton, M. (2015, March 5). The forgotten tax deductions.
Mondaq Business Briefing.
Halperin, D. I., & Warren, A. C., Jr. (2014). Understanding income tax deferral.
New York University Tax Law Review, 67 Tax L. Rev. 317.
Internet Resources
Access the following resources by clicking the links provided.
Please note that URLs change frequently. Permissions for the following links have been either granted or deemed appropriate for educational use at the time of course publication. lynda.com. (n.d.). Income tax fundamentals: Accounting tutorials. Retrieved from http://www.lynda.com/Business-Accounting-tutorials/Income-Tax-Fundamentals/188210-2.htmlIRS. (n.d.). IRS videos. https://www.youtube.com/user/irsvideos.The IRS has a channel on YouTube devoted to income tax information in a video format. There are numerous videos available to help you with the course assessments. Videos are available with closed captions and in ASL and multilingual versions.
You can search this channel by topic. Cruz, A., Deschamps, M., Niswander, F., Prendergast, D., Schisler, D., & Trone, J. (2016). Fundamentals of taxation 2016 [with taxation software] (9th ed.). New York, NY: McGraw-Hill.Chapter 3,
“Gross Income: Inclusions and Exclusions.”Chapter 4, “Adjustments for Adjusted Gross Income.”
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Assessment Instructions
Note: The assessments in this course are presented in sequence and must be completed in order. In Assessments 2–5, you will work step-by-step toward completing a 1040 tax return and all the necessary related forms, based on a provided scenario. Do not complete Assessment 3 until you have submitted and received faculty feedback for Assessment 2.
Incorrect entries in Assessment 2 affect the entries in Assessment 3. For this assessment, use information and publications from IRS.gov and the other IRS resources linked in the Resources under the Required Resources heading to determine the adjusted gross income (AGI) for Jacob and Taylor Weaver, based on the provided scenario.
Complete the following:
Read the information in the scenario below.Download the appropriate forms and publications from IRS.gov.Enter information from Assessment 2, Schedules C and SE, into the 1040 form.Apply the rules for adjustments to adjusted gross income.Enter applicable information from the scenario into the 1040 form.Interpret official rules and instructions to record correct entries on the tax form.Calculate the AGI for the Weavers.Submit the tax form.
Scenario
Jacob and Taylor Weaver, ages 45 and 42 respectively, are married and are filing jointly in2016. They have three children, Ashley, age 9; Patrick, age 6; and John, age 18.Social Security numbers are: Jacob, 222-33-4444; Taylor, 555-66-7777; Ashley, 888-99-1234; Patrick, 789-56-4321; John, 123-45-6789. Taylor works part-time as a paralegal.She earned $26,000 in 2016.Taxes withheld: $4,200 withheld.Estimated tax payments: $25,000.$350 paid with their 2015 state tax return.Jacob and Taylor bought their first house in 2016.
Home mortgage interest: $7,246.Property tax: $2,230.Federal income withholding: $2,350.Charities: $4,500.$435 to rent a moving truck.$8,000 to put new siding on the house.$11,600 for child care expenses ($5,800 for each child).It was paid to Lil Tigers Daycare, 1115 S. Garrison St., Muncie, IN 47305 (EIN 98-7654321).Taylor is a part-time student at Ball State University in Muncie.She received a 1098-T indicating tuition and fees for 2016 in the amount of $6,011.Health insurance for the family, through Taylor’s job, cost $6000 for all 12 months of 2016.They paid deductibles and co-payments of $550.
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Activity Based Costing
Introduction
Activity based costing (ABC) is one of the accounting concepts where costs relating to operation processes are traced back to their causes. Costs are not directly assigned to the products instead they are assigned to activities that relates to their production in the company. The product costs are calculated from its usage of the activities involved (Jurek et al, 2012). ABC costing requires thorough knowledge of the business process that involves the ABC costing in order to calculate and determine the distribution of the costs (Garrison et al, 2009).
The ABC costing concept traces all the resources that have been channeled to the activities and later to the cost objects for accurate calculation of cost distribution. Each cost object represents a process or product while the individual activities are actions that must be executed to enable the creation of the cost objects. The resources in ABC are typically the objects that consumed in the manufacturing activities and ultimately results in such costs as labor, materials or equipment.
The concept of ABC in cost accounting is such that the cost objects in the manufacturing process consume activities that also consume the resources and later the consumption of the resources ends in costs (Weil and Maher, 2005).
ABC accounting provides the true costs of the finished products while also providing a detailed insight on the reasons of the current product costs. These details provide various aspects and opportunities to improve the products while also exploring ways of cost reductions.
The drivers in ABC cost accounting are applied in tracing the resources to particular activities while the activities are utilized to trace the resources to the cost objects. The resource drivers trace all the actual resources to the process activities while the activity drivers extend the trace to the cost objects. The drivers basically represent the actual causes of consumption hence permit accurate distribution of cost down the ABC chain. The drivers shown below in figure 1 represent some resources in ABC accounting and the activity drivers. The drivers must however be accurately correlated with the causes of production consumptions.
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ABC accounting is directly associated with values mostly in monetary terms, however in ABC costing the values can be modified to include additional measurements like environmental factors. ABC costing facilitates the dual calculations as it measures quantities of resources that have been consumed by the manufactured products. From the quantities calculated one can apply specific costs or the results of the environmental impact provided to calculate the required total cost. For example, in automobile production plant, a product can consume up to 4MWH of electricity amounting to $200 per MWH.
ABC Cost Calculations
Monetary
Resource
Resource Amount
Specific Cost
Total Cost
Electricity
4 (MWh)
200 ($/MWh)
$800
The specific impact to the environment may be 20 kg CO2 for every MWH. Hence the products total cost both in monetary and environmental terms would amount to $800 and 80kg of CO2. The expansion of the ABC costing aspect is materially applied in the processing industry to analyze Life Cycle Assessments or analysis of the plant’s manufacturing processes.
ABC Environmental Calculations
Environmental
Resource
Resource Amount
Specific Cost
Total Cost
Electricity
4 (MWh)
20 ($/MWh)
80 (Kg CO2)
The Paint Shop in Automotive Industry
The manufacturing processes in an automobile plant are divided into three important departments:
The Paint Shop
The General Assembly
Body Shop
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The body shop utilizes and transforms the basic raw materials that make up a vehicle into the initial structure of a vehicle. The protective coating is applied in the paint shop while in the final assembly plant of the factory other components are fitted before the vehicle finally rolls over to the show room. These components are like wheels, engines, gear boxes, headlights among other components. Each of the above departments has also different departments. For example, the paint shop has the following departments;
Application of ELPO
Sealing Application
Paint Booth
Post paint repairs that also include cavity waxing.
Pretreatment of the product
The pretreatment stage allows the cleaning of all the contaminants that have accumulated on the body of the vehicle. Phosphate is usually applied at this stage of production as primary coating to ensure a protective layer is evenly applied. The Electro Coat Primer Operation is applied to increase the vehicles paint effectiveness. Sealing and the other remaining processes are utilized to obtain a fine finishing of paint application. The other activities in the paint line are listed in table 1 below.
Activities in Paint line (Table 1)
Activities
A1 – Air Abatement
A2 – Light Building
A3 – Air Conditioning
A4 – Liquid Heating
A5 – Manual Sealing
A6 – Moving Air
A7 – Moving Liquid
A8 – Moving Product
A9 – Operating Robot
A10 – Lighting Process
A11 – Repairing Product
Each of the activities mentioned above have several other activities below them. The following are the activities under Air conditioning activities in the paint shop.
Example of Activity States (Table 2
Level 1
Level 2
A3 – Air Conditioning
A3.1 – Startup Air Conditioning
A3.2 – Production Air Conditioning
A3.3 – Setback Air Conditioning
A3.4 – Maintenance Air Conditioning
A3.5 – Shutdown Air Conditioning
To conclude, ABC costing has a wide range of applications. Numerous studies have been successfully undertaken to determine the flexibility of activity based accounting including the environmental metrics. ABC accounting can be applied to any manufacturing process and can also be expanded to include other non-traditional costs that are only associated with cost accounting.
Reference
Garrison, R., Noreen, W. & Brewer, P. (2009) Managerial Accounting, New York, NY: McGraw-Hill Irwin. 65 -70
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Budgeting for a Start-up Company
Budget to Implement for a Start-up Company
Starting a company can be a daunting task if not well planned. Creating a budget is an essential task for a start-up company and it can help one understand where the business is going and if it is on the right track. The accountant helps in giving financial information that helps managers, tax authorities, investors and others in making decisions about resources allocation in the budget.
A budget should be realistic and accurate for a certain company depending on its goals (Banham, 2009).It helps explain how a company will utilize its resources to attain its goals. The main aim of this paper is to explain a budget to implement in a start-up company that will help it reach its financial forecast.
Although budgeting is indeed more work, it pays off with many benefits. Some of these benefits include price setting, capital and credit procurement, flexibility, and forecasting. A master budget involves linked budgets of production costs, sales, purchase, and income. In the management of a company, it serves as the controlling and planning tool. It has two components, the financial and operational budget.
A business plan is a guide to owners, investors, and managers as a business starts and through its growth in different stages. Apart from a start-up plan, there exist several forms of business plans, which include internal, strategic, feasibility, operations business, and expansion plan (Livingstone, 2013).
Budgeting for a Start-up Company
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A manufacturing company is a company that converts raw materials to finished goods. The consumer buys the finished goods directly or another manufacturing business uses them for making a different product. For the purpose of this paper, a bakery will be the manufacturing company. Value chain is a series of activities that add value to a company. The bakery company value adding activities are of two types, these include primary and support activities. The activities in the primary type include,
Inbound logistics, this will entail the receiving of raw materials.
Operations, this is the manufacturing stage which involves conversion of wheat into baked items.
Outbound logistics will help in the distribution of the baked goods to consumers.
Marketing and sales, this will involve identifying customer’s needs and generating sales for the company.
Services, this activity will provide after sales support services for the consumer.
The secondary activities will be in four categories, which include human resource management, business infrastructure, technological development, and supply chain management. Business infrastructure activity will involve organization of structure, culture, and control systems. Human resource management will involve employee’s recruitment and training. Technological development activity will entail having information technology to support the value chain and the company. Supply chain management will entail purchasing materials, equipments, and suppliers for the company (Hornyak, 2008).
Budgeting for a Start-up Company
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An operating budget is the analysis of asserts, expected costs, and predicated income over a specific period. This type of budget will be appropriate for the bakery company. The budget must account for factors such as material coast, production, labor cost, sales, manufacturing costs, and administrative expenses. The budget is manageable on a weekly, monthly, or yearly basis.
The operating budget also provides a way for a company to estimate its immediate future expenses and revenues. Several reviewing steps are necessary in ensuring the company attains its goals, these steps include, review of business goals against performance, review of budget variance, and access issues associated with budget overages (Livingstone, 2013).
The idea behind benchmarking is to make ensure that its services, products, and practices are the best against their competitors. Four benchmarking process will be utilized in the bakery company these includes,
Process benchmarking this demonstrates how top bakery companies accomplish specific task that earn them success. Interviews, site visits, and research are ways of obtaining information.
Performance metrics this involves use of qualitative measures as the reference for comparisons.
Strategic benchmarking this identifies winning strategies and lessons that have enabled top bakery companies to be successful.
Financial benchmarking involves a financial analysis of the bakery comparing it with top performers in order to assess the company’s competiveness.
Budgeting for a Start-up Company
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Benchmarking has several benefits, which includes, clarity of specific areas of opportunities, set performances expectations, and enable monitor and manage company’s performers (Hornyak, 2008).
Cost accounting involves collecting, analyzing, summarizing, and evaluating numerous alternatives to help managers take the most suitable course of action in the management of the company. The bakery will implement process costing as its type of costing systems. Process costing is a system that allocates direct and indirect cost for the manufacturing process. It assigns goods in large amounts.
The system is important since it will help the company keep track of the expenses in the production and distribution of goods. For example, the company may produce large number of bread but they may sell in small quantities, therefore it is necessary to allocate total product costs to units of product. One of the challenges that the company will face due to this system are costs errors.
Process costing does not allocate direct costs to individual goods leading to cost errors. This leads to increase in production cost thus increase in consumer product price. The company will implement the value chain analysis to overcome the problem that will help reduce the non-production cost thus creating the greatest possible value and price for consumers (Banham, 2009).
Budgeting for a Start-up Company
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For a start-up company to be successful it needs to draft a well-planned budget. This budget determines the success or failure of a company. By using this vital tool, one is able to track company’s expense, asserts and revenue required to keep the company growing. It may also help the company identify problems before they arise and be able to solve them. Therefore, a budget is like a roadmap for a company.
References
Banham, R. (2009). Better Budgets. Journal of Accountancy , 40-63.
Fearon, C. (2010). The Budgeting Nightmare. CMA Managment , 100-112.
Hornyak, S. (2008). Budgeting Made Easy. Management Accounting , 25-40.
Livingstone, J. L. (2013). The Portable MBA in Finance and Accounting. Accounting , 83-95.
Budgeting for a Start-up Company
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Bank Reconciliation and Internal Control
Bank Reconciliation and Internal Control. Bank reconciliation refers to the process performed by companies in ensuring that a company and its records such as ledger accounts and balance sheet are correct including the bank records. The process begins with the company making notification of balances per the statements and after that making some notations concerning the bank balances.
Possibilities can emerge that the bank received money during the closing date of the organization and recorded it properly in its records (Osborn 2013). It might have been recorded in the bank’s records late and appears in the records of the next bank statement, hence resulting in a deposit in transit.
It is, therefore, an important tool in internal control because it gives an accuracy of the records of accounting in the financial statements of the company. If the bank reconciliation statement is carried out properly, it presents the actual performance and help in the elimination of discrepancies in accounting information. After the adjustment in balance per bank to represent the true balance and the balance per book adjusted, the actual values are a true representation and help in internal control by avoiding omissions due to the hard and tedious process of filling accounting information (Weygandt et al., 2015).
It helps in the preparation of statements of accounts for the disparity amid cash balance according to the bank statements and the money equilibrium in the money account of the company.
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The person receiving cash payments should not perform the reconciliation or prepare the reconciliation statements. When the bank reconciliation is done by someone other than the one authorized to check the record keepers and the signers, internal control over cash has been achieved by the company. The main argument behind this is that, if the same person performs both tasks, then the same discrepancy or omission can be repeated if there was any hidden fault in the records.
