Research thesis on use of financial statements in small businesses

The importance of this project comes mainly from the importance of theinventory roll in the life of any business as a vital and essential tool inmanagement and accounting. Most small businesses underestimate theimportance of their inventory or of inventory management process.

They do notrealize that many of the headaches are caused by a lack of control andknowledge of their inventory. Also, this project paper is important forthe researcher to fulfill the partial requirement for the award of BA inaccounting departments by the University Of Hargeisa UOH. When the sampling data will be collected,especially the study focused on the accounting inventory reporting systems inSomaliland business firms.

The business firms try to engage the contemporary accounting systems forfurther detailed information among the business organizations on the basis ofenvironmental force and microfinance situations. This focused on the businessdevelopments, so it needs for more crackdowns to find a well standardized andsmoothly developed operation to the business organizations. The first chapter concentrates all the basics of the project by telling somebasic information that related to the project paper incorporated with overviewof the project paper, core of the paper.

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The Financial Analysis for a Small Business Plan

Introduction of the project paper; which tells how the project has beendeveloped and arranged on the basis of inventory accounting systems and itsusages. Use of Accounting for Inventory In Somaliland Business FirmsProject background, which highlights the basic background of accounting andmanaging of inventory of the business firms, fundamental principle ofaccounting, and challenge. Thesis statements; which tells how thesis is organized and directed under thestudy.

Objective of the research study, including identifications and explanations. Significance: this shows how inventory accounting is important to businessfirms. Scope of the study: how the firms are confined the method of accountingstandardized or contemporary systems are used, how large does the firmsoperated in inventory accounting purpose. Fourth chapter is determined for analyzing and findings that including theinventory policy and store function, monitor and evaluate the managementprocess, data presentation and interpretation, data analyzing and hypothesistesting, and findings, and accounts that frequently misstated.

Fifth chapter addresses the conclusion and recommendations and look-overthe serious coherence of inventory management and reports, recommendationhas been applied on the basis of research. Sixth chapter Appendixes; appendix A information related to use ofaccounting for inventory in Somaliland business firms, and appendix B whichis determines the summary of the findings. Reference;Reference has been selected among the books including accounting books,websites and others such as internets.

Inventory accounting may sound like a huge undertaking but in reality, it isquite straightforward and easy to understand. You start with the inventory youhave on hand. No matter when you sell product, the value of your inventorywill remain constant based on accepted and rational methods of inventoryaccounting. Christopher R.

Use of Accounting for Inventory In Somaliland Business Firmsguidelines for measuring and presenting financial information on a fair,consistent, and straightforward basis. Accounting is a system in which identify, analysis, measure, record,summarize and communicate relevant economic information to other fordecision making Mr.

Wilkinson 2Accounting is the system a company uses to measure its financialperformance by noting and classifying all the transactions like sales,purchases, assets, and liabilities in a manner that adheres to certain acceptedstandard formats. Thedescription and measurement of inventory requires a careful attention. Inventory again can be defined as goods being held for resale. Inmanufacturing, inventory can be raw materials, work-in-process, and finishedgoods. However, the basic concepts of inventory are nothard to grasp and you really should have some familiarity with them.

In other words, thinkabout what is going on.

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For example, suppose your company is in business tosell a product. The product is acquired either by manufacturing it orpurchasing it as a finished product. During an accounting period, such as onemonth, all, or a portion of the inventory is sold. Hopefully, the cost of theproduct did not exceed its sale price so that a profit was realized. With themoney from the profit, more inventories can be purchased to sell, coveroverhead expenses, and pay yourself. Use of Accounting for Inventory In Somaliland Business FirmsThe purpose of accounting is to provide a means of recording, reporting,summarizing, and interpreting economic data.

In order to do this, anaccounting system must be designed. A system design serves the needs ofusers of accounting information. Once a system has been designed, reports canbe issued and decisions based upon these reports are made for variousdepartments. Since accounting is used by everyone in one form or another, agood understanding of accounting principles is beneficial to all procedures andspecial policies.

Small Business Financial Management Practices in North America: A Literature Review

Economy: maintain the value of items in stock at the lowest practical levels inorder both to economize the use of working capital and to minimize the costs ofstorage. Identification: systematically defining and describing all items in stock. Receiving: accepting, from all sources, all items which are used in thegovernment unit. Inspection: examining incoming items for quality and quantity2. At the close ofthe period, a physical count of the remaining inventory is required to determinethe amount unsold. The quantity is then priced and recorded in order todetermine the cost of goods sold.

Under periodic inventory system, the following journal entry is recorded at theend of accounting period. Each time a sale is made a corresponding entry is maderemoving crediting the item from Inventory and charging debiting COGS orPurchases. The result is that the Inventory account maintains a currentbalance, and the COGS account reflects the cost of goods sold to date.

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One ofthe benefits of using a perpetual inventory system is that you can run interimfinancial statements without the necessity of a physical inventory count. Use of Accounting for Inventory In Somaliland Business Firmsaddition, shortages and any other discrepancies may be discovered andcorrective action taken. One way to remember the difference between the two methods is that theperiodic system discloses what is on hand, whereas, the perpetual systemdiscloses what should be on hand.

Perpetual inventory system updates inventory accounts after each purchase orsale. Inventory subsidiary ledger is updated after each transaction.

Inventoryquantities are updated continuously. Under perpetual inventory system, changes in merchandise inventory accountare recorded after each transaction.


  • Business plan financial statement;
  • A Model for Forecasting Small Business Financial Statements and Firm Performance.
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When this occurs, materials or goods never sit idle, which means that aminimum amount of money is tied up in raw materials, semi finished goods,and finished goods…. The just-in-time approach calls for slashing productionand purchase lot sizes and also buffer stocks—but incrementally, a little at atime, month after month, year after year. The result is sustained productivity and quality improvement with greaterflexibility and delivery responsiveness. Cost of goods sold is calculated by using theoldest prices and ending inventory is calculated based on the most recentprices.

Using this method tends to result in a fair statement of inventory on theBalance Sheet. Further,when inventory turns over regularly, the prices used for the cost of goods soldare somewhat current resulting in fair presentation of the cost of sales amount. Cost of goods sold is calculated by using recentprices, while ending inventory is calculated using the oldest prices.

Thismethod tends to emphasize the matching concept accounting principle bymatching current costs with current sales on the Profit and Loss Statement. Under7 the LIFO method, a business assumes that the last item added toinventory is the first item sold. Thus, current sales are reduced by the cost ofthe most recently acquired inventory to determine the net income from thesale. Under the FIFO method, the business assumes that the first item addedto inventory is the first item sold.

When inventory costs are rising, as in an inflationary period, the LIFO methodresults in lower taxable income since the cost of goods sold reflects the morerecent, higher inventory values. For many retail businesses, LIFO is a more accurate method for measuringfinancial performance and calculating the associated income tax. LIFO takesinto account the greater costs of replacing inventory, thereby giving a moreconservative measure of both the financial condition of the business and theeconomic income subject to tax.

Absent LIFO, phantom profits would be taxed. LIFO repeal would mean a forced change in fundamental tax accounting forany business that has historically relied on LIFO for its tax reporting, includingcountless retailers. As a result, such businesses would have to recapture theirLIFO reserves. Use of Accounting for Inventory In Somaliland Business FirmsThe result would be substantial additional income tax, even if spread overseveral years, especially for businesses that have relied on LIFO for many yearsor even decades.

Since companies would have no economic income from suchan accounting adjustment, they would effectively be taxed on non-existent cashflow. A tax benefit, which is the major reason why LIFO has, became popular.