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Financial Accounting Clothing Industry

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Question:

Discuss about the Financial Accounting Clothing Industry.
 
 

Answer:

Introduction to the business

Fashionable Clothing & Trendy Outfit is a start-up clothing manufacturing business that has been planned as the clothing industry has lot of scope and opportunities to grow in the near future. Fashionable Clothing & Trendy Outfit is a recent start-up manufacturer of an upscale clothing line that will be targeting at males that belongs to the age group 20 to 40 years. This particular start-up business will not only develops the clothing line but also support it to conduct advertising as well as promotion campaigns (Weinstein and Pohlman 2015). They plan for strengthening their partnerships with retailers through developing brand awareness. Fashionable Clothing & Trendy Outfit offers clothing line that is classy, upscale a well as expensive and versatile. They need to plan for promoting the products and this takes into consideration range of marketing communications. From future perspective, Fashionable Clothing & Trendy Outfit hopes to develop lines of accessories for men, children and women. Some of the accessories that will be offered by the start-up company are jewellery, watches, perfume and eyewear (Deegan 2013).

Legal form of the business

There is range of legal structures that gets associated with various forms of business. This includes Sole Trader, Partnerships and Corporation. Among the three legal forms of business, Fashionable Clothing & Trendy Outfit will be selecting partnership form of business as the business are owned by two or more people (Weil, Schipper and Francis 2013). The reason behind selecting partnership form of business is that it is easy to establish as well as has multiple sources of capital. This form of partnership will help in sharing of risk between the partners as well as there is minimal government regulation that can hamper the functioning of the business such as Fashionable Clothing & Trendy Outfit. Profit generated from Fashionable Clothing & Trendy Outfit is taxed only once that is again an important factor that needs to be taken into consideration.

Financing options to set up business

There are various financing options that need to be taken into consideration at the time of starting any new business (Fashionable Clothing & Trendy Outfit). The numbers of financing options that are available to the business owner or entrepreneur of Start-up Company are online lending, Angel investors, venture capitalists, factoring or invoice advances, Crowdfunding as well as grants. Among the other start-up financing options, it is appropriate to select venture capitalists as it is the money that is given and help in building new startups that can look into both high growths potential as well as high risk potential (Sheth and Sisodia 2015). It is a known fact that venture capitalists focus mainly on some of the industries who offer advice to the entrepreneurs on whether the product will be successful and brought in the market. As far as venture capitalists are concerned, it looks at the short leash when it comes to company loyalty as well as recovering the investment within a time span of three years.

Role of accounting as it relates to the business

The role of accounting in business relates with the given start-up company named as Fashionable Clothing & Trendy Outfit that help internal and external stakeholders that help in decision-making process through use of financial information. Accounting information communicates to the users where the owners, managers as well as investors require evaluating with the financial performance of Fashionable Clothing & Trendy Outfit. The major principle of management accounting is to relate with getting appropriate information to executive in a format at the time of undertaking decisions (Saunders. and Cornett 2014). The main purpose of financial accounting is to provide information as it helps in assessing the financial history as well as current performance of Fashionable Clothing & Trendy Outfit. Accounting is a language of business that mainly communicates information that helps owners, managers as well as investors for evaluating the financial performance of Fashionable Clothing & Trendy Outfit.

 

Importance of financial statement analysis

Financial statement analysis considers as the process that help at the time of reviewing as well as analyzing the financial statement of Fashionable Clothing & Trendy Outfit for making better economic decisions. In addition, there are different types of financial statement that is helpful for company that include income statement, balance sheet, cash flow statement and statement of changes in equity (Pratt 2013). Financial statement is very much important and useful for the management of Fashionable Clothing & Trendy Outfit. Income statement of Fashionable Clothing & Trendy Outfit is prepared so that it is easy to understand the incomes and expenses borne by the start-up company. Balance sheet is one of the financial statements that help in depicting the financial position of Fashionable Clothing & Trendy Outfit by identifying the assets and liabilities. Cash flow statement shows all the expenses that are cash related and it has been categorized into given types such as cash generated from operating activities, cash generated from investing activities and cash generated from financing activities. This financial statement analysis is important as it provides an idea to the investors that decide upon investing their funds in Fashionable Clothing & Trendy Outfit. Fashionable Clothing & Trendy Outfit is able to analyze its own performance for a specified time.

Examples of PPE assets that are used in the business and selection of depreciation method

Fashionable Clothing & Trendy Outfit is seeking a considerable long-term trade loan for the principle of increasing the clothing line. In addition, the financial support used by Fashionable Clothing & Trendy Outfit will cover the operating expenses as well as product development at the time of launching the plan. Property, Plant and Equipment of Fashionable Clothing & Trendy Outfit will be machines used for manufacturing the clothing and garments for the targeted customers (Nordhielm et al. 2015). The method used by Fashionable Clothing & Trendy Outfit is straight-line method for a period of 10 years.

Example of unearned revenue and prepaid expense

Fashionable Clothing & Trendy Outfit may face problem with the unearned revenue as this decrease the balance in the unearned revenue account as well as increases in the balance of revenue account. Unearned revenue comes under the heading current liabilities that are shown in the balance sheet for a given period of time (Marshall 2014). For instance, when Fashionable Clothing & Trendy Outfit receives $200 in the month of March, then it will be debited the asset cash for a sum of $200 as well as credit the liability account that comes under the heading unearned revenues. On the other hand, prepaid expenses are the future expenses that have been paid in advance. It is all about the costs that have been already paid but not yet been used up or have not yet expired at the same time.

List of items that bank would be interested in making the decision for granting business loan

Banks would be interested in looking at the statement of profit and the initial investment made by Fashionable Clothing & Trendy Outfit to find out how much ability the start-up business has to repay the loan. The bank will look into the accounts section and come out with solution whether loan will be granted or not (Hollensen 2015).

Management of the business

Management of Fashionable Clothing & Trendy Outfit should be finding ways to retain the profits and reserve it so that it can be used in case of emergencies in future when there is loss of any types (Foxall 2014).

Conclusion

Entire study talks about new start-up company named as that Fashionable Clothing & Trendy Outfit that has the capability to generate profits in the upcoming financial year. They are dealing in the clothing manufacturing business that has huge prospects and opportunities so that they can easily generate profits. The above analysis explains that Fashionable Clothing & Trendy Outfit will use to ensure its success where the primary statement is that the financial system will remain in the current upturn.

 

References

Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.

Foxall, G., 2014. Strategic Marketing Management (RLE Marketing) (Vol. 3). Routledge.

Hollensen, S., 2015. Marketing management: A relationship approach. Pearson Education.

Marshall, G., 2014. Marketing management. McGraw-Hill Higher Education.

Nordhielm, C.L., Dapena-Barón, M., Elliott, G., Rundle-Thiele, S., Waller, D. and Cherian, J., 2015. Marketing management: The big picture. Wiley.

Pratt, J., 2013. Financial accounting in an economic context. Wiley Global Education.

Saunders, A. and Cornett, M.M., 2014. Financial institutions management. McGraw-Hill Education,.

Sheth, J.N. and Sisodia, R.S., 2015. Does marketing need reform?: Fresh perspectives on the future. Routledge.

Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.

Weinstein, A. and Pohlman, R.A., 2015. Customer value: a new paradigm for marketing management. In Proceedings of the 1997 Academy of Marketing Science (AMS) Annual Conference (pp. 132-133). Springer International Publishing.

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