1. Describe the type of business you have created including: a. The product or service, and general staffing plan. Provide a rationale for your plan. The business will be a daycare center that provides service to children 6 weeks old to 5 years old. The center will start off with twenty children and expand to 30 in the next year. All permits, licensing, certificates, safety inspections, and criminal background checks will be in compliance before opening the business. The general staffing (see Appendix A, Table 1) plan in most states are a mandatory requirement, it shows the positions of the staff members, educational experiences, duties/responsibilities, and any potential functions or positions that will be needed in the future of the day care center along with the annual salary. b. The form of your business and the benefits it offers your particular business,
The form of business will be a general partnership, where both partners will share in all the risks, liabilities and profits of the Day Care Center. There are many benefits of the general partnership such as collaboration sharing and learning from each other in a partnership, being taxed once as a whole that is a huge tax advantage, having the ease and flexibility to manage the business (Swanson, Sansone, and Klahsen, 2010). c. A chart of accounts specific to your business, including a rationale as to the selection of each account. (Note: The chart of accounts is a blueprint of your business for the lender/investor. It should report the expected resources that you will consume in your business (assets), the sources of those resources (liabilities and equity), the sources of revenue, and expenditures that you expect to incur to earn those revenues. You may build a detailed chart that includes business units, divisions, product lines, etc.)
Chart of accounts (see Appendix B, Table 2) is made up of five categories: assets, liabilities, owner’s equity, revenue, and expenses. These categories are assigned numbers and the numbers are broken down further into sub-categories. These accounts will be used on the balance sheet and the income statement (Weygandt, Kimmel, and Kieso, (2012). The chart of accounts helps the organization keep in line with the financial reporting standards. 2. Based on the form of your business, analyze whether or not you will be required to use Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS) accounting methods and how the IFRS / GAAP convergence will impact your business.
Suggest how you will incorporate any changes into your books and records. (Note: You need to demonstrate to the lender/investor that you have recognized possible changes to GAAP that may impact the accounting and reporting of your accounting events.) The Day Care Center will not be required to use either the GAAP accounting method or the IFRS accounting method. However, Woon Day Care will use the GAAP because reporting is standardized across the U.S and it will be easy for anyone to interpret the financial statement. When it comes to reporting revenue when using the IFRS, there will be a higher revenue reported by IFRS due to the timing of when the revenue is recorded (Fosbre, Kraft, and Fosbre, 2009).
The IFRS and GAAP have many similarities as well as many differences. GAAP standards are U.S. guidance and the IFRS is currently international. There are many differences, these differences as in the definition can lead to recognition and measurement differences in methods, presentation, disclosures of notes on the financial statements (Fischer and Marsh, 2012). These differences will have minimal impact to Woon Day Care Center when the convergence occurs because the Day Care Center will not be a publicly traded company.
Woon Day Care is a service company and both GAAP and IFRS are similar in the reporting requirements. With the center the clients are aware of the price in advance for the type of service they will be getting. Revenue is an inflow of cash or benefits and services rendered when the customer actually receives the service (Bohusova and Nerudova, 2009). These definitions remain similar under both GAAP and IFRS. Whatever minimal changes there will be the Day Care Center will make all adjustment in accordance with the required guidance’s set in place by the U.S. 3. Prepare a pro forma balance sheet and income statement providing the assumptions made and support the valuations assigned.
Small business often goes under because they lack the knowledge when budgeting for the business. Preparing both the pro forma balance sheet (see Appendix C, table 3) and pro forma income statement (see Appendix D, Table 4) helps businesses get a better understanding of the budget processes (Suver and Hadley, 1978). 4. Considering the value of assets (assigned per your balance sheet) used within your business, recommend two (2) specific internal controls that you will implement to protect your company’s assets and resources, justifying how each will provide assurances to management. (NOTE: Safeguarding assets and protecting personal data are paramount to ensuring the viability of a business. Demonstrate to the lender/investor that your assets will be safeguarded and customer information (if applicable) will be protected.)
Two specific internal controls that will be implemented to protect the assets of Woon Day Cay Center is to have 3 signatures for all checks that will be written on the account of the Day Care Center. This way no one can accidentally write themselves a check without it being signed off by 2 other employees. The other would be segregation of duties (Kapić, 2013). There will not be any 2 employees doing a task that would allow for easy fraudulent activities to occur.
Implementation of the recommended internal controls will be conducted with internal control auditing and the use of technology. Placing detection devices on the computers will monitor changes that occur to employee’s information and limits unauthorized personnel from accessing information they do not have a need to know (Masli, Peters, Richardson, and Sanchez, 2010). Challenges and resistance will be overcome with keeping the software updated that is used for internal controls, allocating the funds yearly within the budget to maintain the level of security that is needed. Finally, use an internal control checklist with the technology portion to make sure that it is always in compliance. 6. Evaluate the impact of the regulatory environment, including the Sarbanes-Oxley Act and other regulatory requirements, on your business venture, giving considering to how you intend to comply with the requirements and the general impact to decision making within your business.
The impact of the regulatory environment is a constant work in progress. Although the Sarbanes-Oxley Act (SOX) have been in effect since 2002, it has not deter members of large corporation from continuing with their fraudulent ways. Many large corporations have continued to embezzle and steal from the organizations in which they are in position to safeguard the funds.
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Peters, G. F., Richardson, V. J., & Sanchez, J. (2010). Examining the Potential Benefits of Internal Control Monitoring Technology. Accounting Review, 85(3), 1001-1034 Suver, J. D., & Hadley, G. D. (1978). BUDGETING–KEY TO SURVIVAL IN THE SMALL BUSINESS. Journal Of Small Business Management, 16(2), 46-52. Swanson, A., Sansone, J., & Klahsen, R. (2010). Choice of Entity: Benefits of a Partnership. Tax Adviser, 41(4), 242-244. Weygandt, J.J., Kimmel, .D., & Kieso, D. E. (2012). Financial Accounting. (8th ed). Hoboken, NJ: John Wiley & Sons.
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