Question

1.You are required to form a business and to write a brief introduction about it (name, services or products, legal form, merchandising or manufacturing, retail or wholesale, size, industry, etc…)

2. In deciding on the legal form for your business, discuss the reasons for your choice.

3. Discuss the different financing options to set up your business and the reasons for your choice (s).

4. Identify the users of accounting information for your business and briefly discuss on how each can use the information.

5. Assume that the cash flow from operating activities for your business has been negative over the recent years, discuss the various steps that you are likely to take to improve the situation.

6. Assume that you want to improve the profitability of your business. Discuss the operational decisions that you are likely to take to improve the related ratios.

7. Discuss the decisions you are likely to take to ensure your business survives the COVID-19 impact.

Answer 1

1. Name : GADI

Services or products : Car

Industry: Automobile

Legal form : Partnership

merchandising or manufacturing : merchandising

retail or wholesale : Retail

size: medium

2. A prospective partner can bring an infusion of cash into the business. The person may also have more strategic connections.

The right business partner may also enhance ability to borrow money to finance the growth of the business.

3. Following are financing options-B

• Bank loan
• Borrowing from outsiders
• Personal savings
• Working capital

4. Users of accounting information

• Owner - To know financial position and profitability
• Employees - assessing growth
• Supplier/ Creditor - To check credit worthiness of their dues
• Customer - Viability, Cost of product
• Government - Tax revenue
• Lender - Determining financial position
• Banne Debt/ Interest service coverage

5.

(a) Negotiate payment terms

Set invoice payment terms with your customers so they know when to pay you. And, you agree to your vendors’ payment terms so you know when to pay them. You can try to adjust either of these types of payment terms to improve cash flow.

Also, talk to your vendors about your payment terms. Certain types of vendors may be willing to give you a longer amount of time to pay invoices. Or, see if the vendor will give you a payment plan and split the balance due into smaller amounts.

(b)Talk to lenders

To make up for low sales, you might need to turn to investments or financing. You can apply for a small business loan through your bank.

(c) Reduce operating expenses

Audit your current operating expenses to see if any can be reduced or eliminated.

(d)Increase sales

Bringing in more sales will also improve cash flow. You can sell old inventory at a discounted price. Hold sales and events that encourage consumers to buy larger quantities. You can also expand your business operations. For example, add additional offerings or open your business to online sales.

6. Pushing prices down

7. Demand of car is high because no public transportation is available. I will provide car financing options to the customer so that they can buy car and i can increase my profit.