In early fall, Kim Fuller was employed as a district sales engineer for a large chemical firm. During a routine discussion with plant chemists, She learned that the company had developed a use for the recycled material, in pulverized form, made from plastic soda pop bottles. Because the state had mandatory deposits on all beverage bottles, Ms. Fuller realized that a ready supply of this material was available. All that was needed was an organization to tap that bottle supply, grind the bottles, and deliver the pulverized plastic to the chemical company. It was an opportunity Ms. Fuller had long awaited—a chance to start a business.
In November, she began checking into the costs involved in setting up a plastic bottle grinding business. She acquired a used truck and three trailers to pick up the empty bottles. She purchased one used grinding machine but had to buy a second one new. She also purchased supplies and parts necessary to run and maintain the machines. Finally, she purchased a personal computer with the intention of using it to keep company records. These items used $65,000 of the $75,000 Ms. Fuller had saved and invested in the company.
She found a warehouse costing $162,000 in an excellent location for the business, and was able to interest family members enough in this project that three of them, two sisters and a brother, invested $30,000 each. These funds gave Ms. Fuller the $50,000 down payment on the warehouse. The bank approved a mortgage for the balance on the building. In granting the mortgage, however, the bank official suggested that Ms. Fuller start from the beginning with proper accounting records. He said these records would help not only with future bank dealings but also with tax returns and general management of the company. He suggested that she find a good accountant to provide assistance from the start, to get things going on the right foot.
Ms. Fuller’s neighbor, Marion Zimmer, was an accountant with a local firm. When they sat down to talk about the new business, Ms. Fuller explained that she new little about keeping proper records. Ms. Zimmer then suggested that she buy an "off-the-shelf” accounting system software package from a local office supply retailer. Ms. Zimmer promised to help her select and install the package as well as learn how to use it.
To select the right package for Ms. Fuller’s needs, Ms. Zimmer asked her to list all of the items purchased for the business, all of the debts incurred, and the information she would need to manage the business. Ms. Zimmer explained that not all this information would be captured by accounting records and displayed in financial statements. She promised to create files to accommodate accounting and non-accounting data once Ms. Fuller had given her some more information. . . .
Assignment
- What information will Ms. Fuller need to manage the business? Classify this information in two categories: accounting information and non-accounting information.
- See what you can do to draw up a beginning of business list of the assets and liabilities of Ms. Fuller’s company making any assumptions you consider useful. How should she go about putting a value on the company’s assets? Using your values, what is the company’s opening owners’ equity?
- Now that Ms. Fuller has started to make sales, what information is needed to determine “profit and loss"? What should be the general construction of a profit and loss analysis for Ms. Fuller’s business? How frequently should she do such an analysis?
- What other kinds of changes in assets, liabilities, and owners’ claims will need careful recording and reporting if Ms. Fuller is to keep in control of the business?