Question

Analyze the relationship between the transactions listed below and the success of your current or future business . For example: how would each transaction impact the income statement and balance sheet of your company? illustrate your claims using specific examples

transactions:

- purchasing caskets to display in the funeral home or purchasing one that a customer wants for their loved one. I would document the casket and credit it to accounts payable.

-I will also run into cost of goods sold which would include caskets, vaults, urns, monuments, clothing, memorial packages and jewelry. This are very important and will allow me to keep track of how well each one is doing and if I need to make any changes to help my business.

-Net profits will also be important because that will show how much I made after my customers have bought from me. I will also need to keep a profit and loss statement that will show how well my business is doing from the services offered such as cremation, open casket visitation, and all packages offered to my customers. By keeping track of these transactions, I will be able to see how well of a profit I am making and possibly what service or package needs to go if I am not making any money at all.

Answer 1

The impact of transactions on the income statement and balance sheet is here under.

i. purchasing caskets to display in the funeral home or purchasing one that a customer wants for their loved one. I would document the casket and credit it to accounts payable.

The purchased casket can be treated in two ways- Firstly the cost of caskets may be treated as an asset acquired for business. This may be given on returnable basis/rental basis. The rental income will be credited in income statement and the casket will be shown as an asset in balance sheet. Depreciation will be chargeable on the asset held which will be debited as an expense in pnl account. The inventory of caskets may be maintained in balance sheet.

Secondly, the caskets may be sold to the customer. The casket purchase cost will be debited as an expense in income and expenditure statement and the sale to customer be treated as Sales credited in income statement. The customers be treated as an asset and the seller from whom casket is purchased, as a creditor.

ii. -I will also run into cost of goods sold which would include caskets, vaults, urns, monuments, clothing, memorial packages and jewelry.

In such case, the cost of goods sold will be debited in income statement to derive at the gross profit from operations and the purchase cost will be payable to creditor as per balance sheet. The track record of packages offered, revenue generated from them will help in analysis of change in the packages.

The following things need to be taken care off for the success of present and future of this business:-

i. Financial management is the pillar of any successful business. The accounting work should be outsourced as it is more cost effective in the long run. The analysis will be better of how well the business is doing and how much is the revenue generated from the services offered such as cremation, open casket visitation, and all packages offered to the customers.

ii.  Often, payment for funeral services is a sensitive topic, the grieving families want funeral professionals to be sensitive to their financial situations. The funeral home should offer a variety of payment options to families, from cash and credit cards to payment with life insurance policies. This will ensure easy flow of cash in the hands of business owner.

iii. While the funeral home may have a solid foundation of financial order, a business owner should always keep a cash reserve. Unexpected costs and accidents occur all of the time, it is a part of life. Cash reserves can help to pay employees and suppliers during slow times and it can help the business take on new growth opportunities.

The illustration of profit and loss account/ income statement and balance sheet based on above transactions is following:-

PROFIT AND LOSS ACCOUNT	YEAR 1	YEAR 2
Sales	$180,000	$250,000
Direct Cost of Sales	$64,000	$105,000
Other Costs of Sales	$0	$0
TOTAL COST OF SALES	$64,000	$105,000
Gross Margin	$116,000	$145,000
Gross Margin %	64.00%	58.00%
Expenses
Payroll	$30,000	$75,000
Marketing/Promotion	$20,000	$24,000
Depreciation	$12,000	$12,000
Mortgage Payments	$35,000	$35,000
Utilities	$4,000	$4,000
Insurance	$1,500	$1,500
Payroll Taxes	$5,000	$10,000
Auto Expenses	$10,000	$12,000
Supplies	$2,500	$3,000
Total Operating Expenses	$120,000	$176,500
Profit Before Interest and Taxes	$60,000	$73,500
Interest Expense	$15,000	$13,000
Taxes Incurred	$0	$800
Net Profit	$45,000	$59,700
Net Profit/Sales	25.00%	23.88%

BALANCE SHEET
Assets
Non-cash Assets from Start-up	$80,000
Cash Requirements from Start-up	$50,000
Additional Cash Raised	$25,000
Cash Balance on Starting Date	$95,000
TOTAL ASSETS	$250,000
Liabilities and Capital
Liabilities
Current Borrowing	$200,000
Long-term Liabilities	$0
Other Current Liabilities (interest-free)	$0
TOTAL LIABILITIES	$200,000
Capital
Planned Investment
Owner	$50,000
Investor	$0
Additional Investment Requirement	$0
TOTAL PLANNED INVESTMENT	$50,000
TOTAL CAPITAL AND LIABILITIES	$250,000