Question

In: Accounting

You have a friend that is about to start a small business using a credit card.  They...

You have a friend that is about to start a small business using a credit card.  They understand nothing about accounting and think they will have all of the information they will need to manage the company by keeping track of their credit card balance.  Please explain to them what type of accounting information they will need to help them run the business.Be sure to use the terminology and information from the textbook

Solutions

Expert Solution

Answer is as under :
An cash accounting or accrual accounting system should be selected to gather the required information. By following this methods whatever financial information is needed will be quickly and easily available and that will make any required reporting as easy and accurate as possible.
Credit card provides a business with option to easy manage the fund requiredement as per the credit line given by bank on the basis of certain percentages of interest
A business credit card can be a convenient way to quickly access financing for short-term needs and can increase your company's purchasing power. They are often marketed as an attractive alternative to a traditional line of credit. Like any source of financing, a business credit card comes at a cost and must be carefully managed.
Following types of accounting information they will need to help them run the business :
1) The type of accounting method to be followed i.e.. Cash and accrual method,
2) Banking system that company will follow i.e. : Overdraft , cash credit,
3) Sources of fund : Loan or own fund
4) If credit card is required, then credit line needed, rate of interest, cost of money, opportunity cost needs to be understand,
5) Accountability of bank and cash transaction
6) Source of revenue
7) Types of expenses and funding source
8) Whether fund is available for payment of credit card expenses when due date comes
9) No. of credit card for payment
10) How fund will be used ie : for investment , expenses

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