The report on the accounts and accounting techniques of Mr Zahid Chaudhry's business "New Fashion Fabrics" sets out to interpret the accountant's role in the business. And how vital the job of an accountant is to a fully operational business. Mr Chaudhry is the sole proprietor of the business and has been established with New Fashion Fabrics since 1996. A personal interview was conducted with Mr Chaudhry on the 19th of November 2002. The information that was needed for the body of the report was extracted at this interview. (For a copy of the questions see the Appendix)
Through the interview it was discovered that Mr Chaudhry's accountant Mr Andrew Collins. Mr Collins is employed on a part time basis and comes to the business to keep the accounts weekly. Mr Chaudhry leaves the accounts solely in the hands of Mr Collins therefore is alleviated from the responsibility of the accounts. The accounts are generally produced not only to aid the company in the important decisions that there are to be made but also fro legality reasons in regards to Tax. Also there is the option to sell the business.
If Mr Chaudhry were to retire and liquidate the business then he would have a record of how much the business is worth to him. The conclusion of the investigation suggests that accounting and accountants within New Fashion Fabrics have an inherently strong role to play in the general book keeping of the company, giving Mr Chaudhry sufficient information for him to make executive decisions. In the production of this report, we hope to find out the primary roles of an accountant in a small business, and to asses the use of accounts produced.
This will cover the importance of an accountant's job to the business, the value of the reports produced and the roles they play in running the business. In doing this, we must look at a specific business and investigate their relationship with their accountant, how the accounts produced are used and for what purpose. The business we have chosen to use for our study is New Fashion Fabrics based at 387 Cowley Road, Oxford. This is a sole trader company with one proprietor, Mr Zahid Chaudhry. New Fashion Fabrics are a retail company selling clothing fabric and sewing accessories, and have been established for just over six years.
The company's stock is bought in bulk from a supplier on credit terms of 28 days. Preparation Prior to our questionnaire, we chose the type of company we were aiming to interview based on the ideology that the business needed to be a small company but not a chain. A chain store is more likely to have a centralised accounting department, thus making it useless for our report. Once we had selected a shortlist of suitable companies, the proprietor of New Fashion Fabrics, Mr Zahid Chaudhry agreed to the interview, and for his company to be the subject of our report.
The interview took place on the 19th November as arranged. We interviewed Mr Zahid Chaudhry using a list of questions we had prepared at an earlier stage, (see appendix). Aims of the interview Mr Chaudhry was interviewed in person rather than in writing, as it felt this would be more formal, more appropriate for the information we wanted to collect and that we would therefore be able to extract more information. This we feel worked to our advantage as Mr Chaudhry provided us with a substantial amount of precise and useful information.
1 1 Types of accounting information New Fashion Fabrics keeps and produces. Throughout the duration of the interview, Mr Chaudhry stressed that New Fashion Fabrics kept records of all sale and purchase transactions made. Most sale transactions are in cash or cheque and some, made by credit card. Credit card purchases must be recorded and balanced off at the end of the credit period in accordance to the prudence concept, rather than recording that the company has the money when the purchase is made.
Andy Collins (New Fashion Fabrics' accountant) uses the double-entry book-keeping system in the accounts. This method is used, as it is consistent and accurate. Each entry has to be entered twice, debited to one account and credited to another, this way, transactions can be tracked and it is difficult for money to disappear from the accounts. This way each transaction is regulated and money cannot be misplaced. The other accounting methods Mr Collins uses are the Profit and Loss account, Balance Sheet, and a Cash book.
The Cash book is part of the double-entry system and it is used to record the sales and purchases of goods. The Profit and Loss account shows the liquidity of the business, and the Balance sheet shows the amount of money the company has tied up in assets, the liabilities it owes and the amount of capital. There are two main reasons for keeping records, one, for taxation purposes and two, to keep an up-to-date picture of the business' financial status.