History of Tamims fried Chicken

The hospitality sector is home to the company Tamims Fried Chicken. In the U.S. state of Florida, it is situated in Palm Beach County. The hotel's primary business is selling chicken, as implied by the name. To accommodate the variety of its customer base, it has, nevertheless, grown through time and added several more meals to its menu. Ten years into existence, it has served a wide range of customers. To evaluate its success, the company has been using a variety of financial and management accounting methods. Financial statements are used to measure the company's financial performance, liquidity, and strength. They serve as a reflection of the company's transactions of the business. It uses the balance sheet, the Income statement, the cash flow statement, and the statement of changes in Equity. It also uses management accounting techniques in costing and budget preparations.

Financial statements

Examples of financial statements that the business keeps are the balance sheet, the income statement, the cash flow statement, and the statement of changes of equity (Parker, 2007). The firm’s accountant first records all the business transactions using the double entry concept in accounting. It records journal entries for transactions. The journal entries provide information about which accounts are to be credited and which to debit (Phillips, 2010, p. 90). There business then transfers the debit and credit values to ledger accounts using the double entry concept that has an effect on two accounts for every transaction (Ellerman, 2014, p. 483; Linsmeier, 2011, p.411). The balance of each account is calculated after posting the journal entries. The business prepares a trial balance at the end of each accounting period. Thereafter, it prepares the financial statements such as the balance sheet, the profit and loss account, and the cash flow statement.

Illustration

The following is the firm’s financial statements as at 31st December 2016

Balance Sheet

The balance sheet gives a firm’s financial position at a given point in time. Its main contents are the assets, the liabilities, and the shareholders equity. Tamims Fried Chicken balance sheet as at 31st December 2016 is as follows:

Tamims Fried Chicken

Balance Sheet as at 31st December 2016

Assets Liabilities

Current Assets Current Liabilities

Cash 45600 Accounts Payable 28700

Accounts Receivable 2300 Accrued Expenses 2200

Prepaid Rent 4000 Unearned Revenue 900

Inventory 12200 Total current liabilities 31800

Total Current Assets 64100 Long-Term Liabilities 62650

Long-term assets Total Liabilities 94450

Leasehold’s improvement 72000 Owner’s Equity

Accumulated Depreciation (4000) 68000 Owner’s Equity

Long-term Assets 68000 Retained Earnings 17250

Common Stock 20400

Total Owner’s Equity 37650

Total Assets 132100 Total Liabilities and Owner’s Equity 132100



The following is the profit and loss account for the financial year 2016

Tamims Fried Chicken

Profit and Loss Account for the year ended 31st December 2016

Total Revenues 208000

Less Cost of goods sold 102500

Gross Profit 105500

Less Expenses

Legal fees 2500

Advertising 3200

Depreciation Expense 1400

Utilities 3200

Interest Expense 2500

Wages and saleries 37500

Rent 3800

Other Expenses 14700

Less Total Expenses 68800

Net Profit 36700

Ratio Analysis

Ratios are crucial quantitative tools for analyzing business performance. They are useful to management, investors, and shareholders (Bujaki, 2012, p. 316). Some of their uses include the prediction of future performance and in the identification of internal strengths and weaknesses. The main categories of ratios are liquidity, efficiency, profitability, and solvency (Loughran, 2016, p. 1190)



Liquidity Ratios

Current Ratio

It measures the ability of a business entity to pay its short-term obligations using current assets. A higher ratio indicates that the firm is performing well regarding liquidity (Berry, 2011, p. 84) It is obtained by the formula Current Ratio=

For Tamims Fried Chicken: Total Current Assets= $ 64100

Total Current Liabilities= $31800

The current ratio= = 2.016

It indicates that the firm is performing well and has the ability to pay its short-term obligations.

Profitability Ratios

They measure a firm’s ability to generate profit from its operations. Their focus is on the return on investment in inventory and other assets. Creditors and investors can use them to gauge a firm’s return on investments and therefore make appropriate decisions can use them. They are related to efficiency ratios because they also indicate how a company is using their assets in the generation of profits (Cordis, 2014, p. 1161). The main profitability ratios are gross profit margin, the net profit margin, the return on capital employed, the return on equity, and the return on assets.

Gross Margin Ratio

Its formula is Gross Margin Ratio= 100

It is a ratio that indicates how profitable a firm can sell its inventory. Higher ratios indicate that the business is selling its inventory at a big profit percentage and is therefore desirable (Peavler, 2016). A business with a high ratio will have more ability to pay operating expenses such as utilities, rent, and salaries.

For Tamims Fried Chicken, the gross profit for 2016 is $ 105500 and the revenues is $ 208000.

The gross margin is 100= 50.72%

The business is performing well in this regard since it can generate 50.72% gross profit from its sales. It has adequate money to pay its operating expenses.

Profit Margin Ratio

Its formula is Net Margin Ratio= 100

It measures the percentage of net income earned from net sales. It indicates how well a business is managing its expenses relative to its net sales. It is useful for investors and creditors in determining the effectiveness of a business to convert sales into net income. Investors have an interest in the ratio to determine if the profits are sufficient for the distribution of dividends. A higher ratio is desirable.

For the case of Tamims Fried Chicken, the profit margin ratio is 100= 17.64%

For the food industry, this profit margin is desirable as it is likely that it will perform its competitors. It is because profit margin is industry specific as some will have higher profit margins than others because of the nature of their operating environment.

Management Accounting Techniques

They are techniques that involve planning, budgeting, project decision making, and operational measure of performance. It entails the identification, analysis, recording, and the presentation of financial information for use by the internal management.



Costing and cost classification

Costing is a crucial component in management accounting. There are various categories of costs (Bjurklo, 2006, p. 38). They include:

Product costs vs. period costs

Product costs include direct materials, factory wages, direct labor, and factory depreciation. Period costs include marketing costs, and administrative costs, among others.

Fixed costs and variable costs

Fixed costs remain constant within a given output or sales levels. Variable costs change with varying productivity levels. They include direct labor and direct materials.

Sunk vs. opportunity costs

Sunk costs are historical costs that cannot be avoided by the current decisions. Opportunity costs are costs of potential foregone benefits.

Budget preparation

It is necessary for organizations to prepare budgets for the efficient use of the resources at its disposal. Both planning and control are essential in budgeting (McWatters, 2016). A budget is a plan that indicates a firm’s objectives and how the management should acquire resources to achieve the objectives (Blondal, 2003, p. 44).

Budgets are adjusted for future expectations based on past experiences. There are various types of budgets including master budget, financial budget, operating budget, and sales budget.

The following is a sales budget for Tamims Fried Chicken





Tamims Fried Chicken

Sales budget

For the year ending 31st December 2017

Q

Quarter 1

Quarter 2

Quarter 3

Quarter 4

Total

Sales in units

6000

6500

7000

7300

26800

Price per unit

10

10

11

12



Total sales

60000

65000

77000

87600

$ 289600



Conclusion

Tamims Fried Chicken should make efficient use of its accounting tools to assist it in the management and decision making for enhanced profitability and efficiency. It is necessary for the business to employ a qualified and experienced accountant to help steer it towards achieving its goals and objectives.

































References

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Blondal, J.R. (2003). Accrual Accounting and Budgeting. OECD Journal on Budgeting, 3(1),

43-59.

Bujaki, M. (2012). Industry Identification through Ratio Analysis. Accounting Perspectives,

11(4), 315-322.

Bjurklo, M. (2006). Narrative accounting for competence creation. Journal of Human Resource

Costing & Accounting, 10(1), 34-47

Cordis, A.S. (2014). Accounting Ratios and the Cross-section of Expected Stock Returns. Journal

of Business Finance & Accounting, 41(9), 1157-1192.

Ellerman, D. (2014). On Double-Entry Bookkeeping: The Mathematical Treatment. Accounting

Education, 23(5), 483-501.

Linsmeier, T.J. (2011). Financial Reporting and Financial Crises: The Case for Measuring

Financial Instruments at Fair Value in the Financial Statements. Accounting Horizons,

25(2), 409-417.

Loughran, T. (2016). Textual Analysis in Accounting and Finance: A Survey. Journal of Accounting Research, 54(4), 1187-1230.

McWatters, C.S. (2016). Management accounting in a dynamic environment. New York, NY:

Routledge.

Parker, R. H. (2007). Understanding company financial statements. London: Penguin.

Peavler, R. (2016). What is the Gross Profit Margin? Retrieved from

https://www.thebalance.com/what-is-the-gross-profit-margin-393201

Philips, F. (2010). Creating Early Success in Financial Accounting: Improving Performance on

. Adjusting Journal Entries. Accounting Perspectives, 9(2), 87-96