Complete in pairs.
Template: Accounting Case Study Memo Template
Accounting Case Study #1
You are the assistant manager at an accounting firm in public practice. The owner of a local HVAC (heating and air conditioning) business, Troy Barnes, has come to you for help with an accrual-based balance sheet and for advice on how to secure funds for his/her business.
The owner of the HVAC business wants to expand the business (a sole proprietorship), purchasing a new van and equipment to allow the hiring of a second employee. As the owner does not have cash on hand to purchase the assets, he/she has identified two options for raising the capital:
• a loan from a bank, secured by a second mortgage on his/her personal residence
• accepting an offer from one of his clients to take on a partner, then using the buy-in cash to purchase the equipment
Both parties (the bank and the potential partner) have requested an accrual-based balance sheet. The owner currently just tracks cash kept in a bank account used for his business [which the owner does not commingle with personal accounts], and keeps a ledger of cash expenditures and receipts.
The owner has come to your firm for advice on two matters:
• Preparation of the accrual-based balance sheet. Mr. Barnes is unsure of how this financial statement will be different from just his current bank balance. The owner would like to see a sample balance sheet, based on the information he provides. By gathering receipts, the owner is able to present you the following information as of September 30, 2015:
1. Cash in the banking account is $16,000.
2. He/she has $4,000 due for two jobs recently completed for which you have not yet been paid.
3. He/she owes $10,000 for inventory purchased two months ago.
• Explain the different components of the balance sheet to Mr Barnes.
• The owner would like advice on whether to take out a mortgage to purchase equipment, or to take on a partner.
You will present your analysis and recommendation to the business owner in a typed memo. The template is available on the class website. Please print your final memo and balance sheet and hand it in to the supply teacher.