Accounting for a Manufacturing Company: Allen Frame
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Using the sample format, list each of the activities in the scenario showing how they affect the balance sheet, income statement, and statement of cash flows by listing each year on a horizontal financial statement. At the bottom of the spreadsheet, include a column total for each of the categories.
Write a memo to the president regarding your conclusions and suggestions for future accounting solutions.
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Solution Summary
Allen Frame Company needs some assistance to upgrade their accounting system to produce more meaningful and accurate income statement data for analysis. The memo to the President is a comprehensive view of the serious flaws in the current system. The proposed solutions to implement changes will provide data which can be useful to management.
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To the President
As this company grows, the accounting system will need some refinement to be able to produce more useful financial data for the owners. Cost of goods sold is the terminology normally applied to businesses which buy goods and resell them without adding any significant processes or changes to the goods.
Allen Frame Company is a manufacturing company, rather than a reseller of goods. In a manufacturing business, inventories are in various stages of process at any given point in time. The accounting system should be designed to charge costs to the manufacturing process in such a way that will allow for valuation of the unsold inventory at the end of each fiscal year. Making those decisions and determinations with regard to the inventory accounts will then produce an income statement that is meaningful for evaluation by management.
Most manufacturing companies have three types of inventory ...
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