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In this report, I will outline key accounting policies and records for Harrington Books. As Harrington Books is a new company, I am going to try and keep my comments and recommendations as straightforward as possible.

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Introduction

Harrington Books Sample Solution by Elizabeth LaRegina Report to: Peter Harrington Subject: Accounting Policies and Records for Harrington Books. Introduction In this report, I will outline key accounting policies and records for Harrington Books. As Harrington Books is a new company, I am going to try and keep my comments and recommendations as straightforward as possible. From my perspective, the following are the key users of the financial statements, and their objectives: Peter Harrington - as the owner your concerns centre around tax minimization, internal control and of course, maximizing profit. Bank - since the bank has provided a line of credit to Harrington books, and has taken business assets as collateral, they will also be interested in financial information Manager - since the newly hired manager is on a variable compensation plan with a bonus based on year end profits, he or she will be concerned with how those profits are derived CCRA - the tax authorities will also be interested in the financial information as the basis of fair tax payments by the business. ...read more.

Middle

at the time they are introduced into the business as inventory * the inventory can be revalued at year end * there are no other feasible alternatives. This approach satisfies the objectives of internal control and will likely be acceptable to the tax authorities 2) Lease of Shop Space * shop is leased for two years * this should likely be disclosed to the bank so that they are aware of the arrangement 3) Website Development Costs * the decision needs to be made whether to expense or capitalize the website development costs that have been incurred * these costs have possible long term benefits to HB * the tax authority would probably allow a write off of the costs, which would help reduce taxes payable * however, a better alternative might be to capitalize the costs and write off the costs over a number of years. * the length of time of the contract for web hosting might be a reasonable choice of period for write off. ...read more.

Conclusion

8) Six Books for a Dollar * the value of the six books sold for a dollar is likely much higher than a dollar * our objective is to match revenues and expenses * the sale can be construed as a single sale of 12 books, and the revenue from the sale needs to be matched with the expenses * a provision needs to be made for those that will not fulfill their promise to purchase the additional six books at regular prices * a note to the financial statements can be used to explain this marketing plan Accounting Records I have also been asked to comment on what accounting records HB should keep. My suggestions include: * the web versus shop records should be kept separately, to a reasonable extent. For example it might make sense to keep separate records of cash receipts and payments. * Inventory accounts for different books, so that flows can be monitored, and slow moving books identified * Periodic inventory counts should be takenMonthly and annual income statement, balance sheet and cahs flow statements. A cash flow forecast might also be valuable in that it could help predict future cash flow needs. ...read more.

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