Ashleigh A Gehlig 12:04

ACCOUNTING ESSAY: QUESTION ONE.

RIVERS DANCE SCHOOL

Ashleigh Gehlig

When making a drastic business decision such as the one proposed by River’s Dance School, it is important to go about making the decision in the appropriate manner, through the use of a formal decision-making model process. This should be done with the aid of relevant information generated in the accounting process and through an evaluation of the effectiveness of the dance school’s ownership structure.

When deciding whether or not to close the River’s Dance School, it is in the best interests for Dana and David to follow a formal decision making process such as the CACE decision making model.

CLARIFY.

The first step is to clarify the dance school’s objectives, diagnose the problem and outline any possible constraints associated with solving the problem.

Dana and David’s objectives when they established the River’s Dance School was most likely to run a successful, profitable business with good student relations and positive feedback. It is imperative that Dana and David clearly identify these reasons, for running the business as Dana and David can then ensure that they meet these objectives in making a decision. The reason they are now contemplating closing the business is because of the schools decreasing annual profitability – an important objective that over the past three years they have failed to meet. Using reports generated in the accounting process, Dana and David now need to establish the reason behind the decline in profitability such as ineffective advertising. In order to turn this around there is however obvious constraints such as time, money, legal issues and resources – all of which need to be clearly identified before a decision is made.

ANALYSE.

Having established the problem, Dana and David now need to gather any information relevant to the problem that may aid them in making a decision.

This step in the CACE decision-making model is where the accounting process plays a vital part. The final step of the accounting process in which final reports are prepared provides Dana and David with the opportunity to analyse and interpret these reports, calculate ratios and compare these with the industry average – providing them with necessary information regarding the profitability of Rivers Dance School. These reports include a statement of financial performance, which shows revenue earned and expenses incurred - calculating the businesses profit and loss. Other statements prepared in this part of the accounting process are also necessary as they may enable Dana and David to see what the business may have done differently in the past three years that has resulted in the change in profitability.

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Other information sourced outside of the accounting process may also be of help such as the management of competitors businesses or student feedback. Having gathered all the relevant information, Dana and David must now put aside the idea of closing the business for the moment and first look at ways of improving the schools profitability and solving the problems of the business, while meeting its objectives, using information gathered. Ideas may include a new class selection to bring in new clientele; a different membership/fee structure; a change in premises to modernise the school or a different advertising structure to get ...

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