(solution) Purpose: The purpose of the written component of the accounting

(solution) Purpose: The purpose of the written component of the accounting

Purpose:  The purpose of the written component of the accounting cycle problem is to apply the accounting knowledge you have gained this semester by analyzing Business Solutions? financial statements.  In addition, this memo gives you practice on your business writing skills.

 

Task: Prepare a business memo from yourself (as the accountant for Business Solutions) to Santana Rey, the owner analyzing the financial statements you prepared earlier in the term.   Throughout, you are required to use correct accounting terminology in your analysis as though you, the knowledgeable accountant for Business Solutions, are presenting this information to Santana Rey, an owner who does not have a financial background. 

Guidelines: Your written analysis must include the following:

Computation of the current ratio for the three months ended December 31.

At least one paragraph analyzing the current ratio calculated above.  In this analysis, you should define the current ratio (in your own words) and explain why the current ratio is an important indicator of a company?s liquidity. 

Explanation of the prepared financial statements.  Write at least a paragraph on each of the three financial statements you have prepared.  Define the purpose of each financial statement and explain the information they uniquely provide to assist in decision making.   

Explanation of the key accounting principles and assumptions behind the preparation of the financial statements.  That is, explain (in your own words) to Santana Rey the general principles that determine:

At what value information is recorded in the financial statements (i.e. the measurement principle).

When and under what conditions revenue can be recognized in the financial statements.

When and under what conditions expenses can be recognized in the financial statements.

What the dates mean for each financial statement presented (i.e. the time period assumption).

What else would be needed for the financials to be complete (i.e. the disclosure principle).

Finally, your business memo should include an introductory paragraph (explaining the purpose of the memo) and a concluding paragraph that summarizes the key points, recommendations, and/or next steps. 

Format:  1-2 pages, single-spaced in proper business memo format.  See link below for an example. Use of headings and bullets is encouraged to improve readability.

Example:  http://owl.english.purdue.edu/owl/resource/590/04/

Due Date:  This written analysis should be submitted by the end of the course.

Grading Rubric:

Written Analysis (Business Memo):

Current ratio calculation and analysis

10

Explanation of prepared financial statements

20

Explanation of key accounting principles

20

Effective use of financial terminology

10

Introduction and Conclusion

10

Writing quality and proper format  (e.g. grammar, structure, format and mechanics)

30

Total Points for Business Memo

100