Aspects of Accounting

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Table of Contents

Introduction
SEC Filings
Ways of Reducing Costs
Equipment Financing
Payment of Dividends
References

Introduction

The close process is one of the most rigorous, time-consuming, and painstaking activities that the finance department of every organization has to endure. However, it must be done because companies are expected to follow the strict rules that are put in place by the regulatory authorities. There are various approaches that companies can use to shorten this process. The first approach is by breaking down the activities into several parts. For instance, the line-by-line items in financial statements can be handled separately in a comprehensive and faster way. The second approach is to use technology. Simple application can be implemented to facilitate the process and to help minimize errors that may result in redoing the work. It is important to select an application that best suits the nature of the business. The use of technology helps in saving time and money. Some of the activities that can be carried out by the applications are publishing the financial statements, reconciling the financial accounts, and managing the activities that surround the close process (Horner, 2013).

The close process requires a lot of human capital. Therefore, as a controller, it is important to evaluate the skill set and fill in any gaps that may arise. This can be accompanied by an evaluation of the risk level of various close activities. Thus, less risky activities should be assigned to junior staff while high-risk activities should be left for the top talent. Therefore, the proper use of human capital can also improve the process.

The final approach is by ensuring that there is proper communication in the department. For instance, staff meetings can be held to identify areas that require more attention. This should be a continuous activity in the organization and should not wait for the period of the close process. Proper communication in the department can fasten the process. For an organization to have a faster close process, then there should be a balanced focus on governance, people, and process (Horner, 2013).

SEC Filings

The first SEC filing is form 10-K (annual report). This report is filled once a year and it gives a comprehensive view of the business of an entity, financial statement, and the financial condition.

The second report forms 10-Q (quarterly report). The form is filed at the end of every quarter. It is made up of an unaudited financial statement.

The quarterly report help users to have a continuing view of the financial position of the company as the year progresses (Clarke, 2012).

Ways of Reducing Costs

Companies often implement several measures such as cost-cutting as a way of improving the bottom line. One approach that manufacturing companies use to reduce costs is ensuring that contracts run for at least a year. One advantage of this approach is that it lowers the cost associated with new contracts, thus lowering the cost of goods sold. A disadvantage of this approach is that it favors the vendor.

The second approach entails matching the terms of payment with the inventory turns. If a company deals with a variety of inventories, then each inventory moves at a different rate. Thus, the payment terms need to be matched by the rate of flow of inventory. This will eliminate the idea that all payment terms fit all inventories.

One advantage of this approach is that it will improve the productivity of inventory because suppliers will be motivated to sell the best moving items, thus lowering costs such as inventory holding costs among others. Besides, it will free cash (working capital) which can be used in other areas. A major drawback of this approach is that it is time-consuming and tedious (Clarke, 2012).

Equipment Financing

The purchase of equipment is one of the important tasks that most entities always undertake. However, some of the equipment requires huge capital outlays. Therefore, it is important to analyze the various ways a company can use to acquire such equipment. In this scenario, there are various ways through which Brock Company can use to acquire the equipment. One way is through outright purchase of the equipment. This option guarantees the company ownership and tax breaks, but it requires a lot of money. Therefore, the company will need to explore the various sources of finance.

The first source of finance is the use is retained earnings. The second option is the use of equity. The options that the company can explore under this are issuing of new shares, deferred ordinary shares, preference shares, and rights issues. The third option is the use of loan stock such as debenture and notes. The final option is the use of bank lending such as overdraft and loan (Drury, 2013).

Apart from buying, the company can also lease the equipment. In this case, the ownership of the equipment will remain with the lessor but the business will be making lease payments to allow for using the property. Under leasing, the company can use either finance lease or operating leasing. The third option is hire purchase. It is commonly known as installment credit. The company can also seek government assistance in the form of a grant or direct support. Depending on the size of the business, the company can also seek venture capital from the various institutions that offer such services (Drury, 2013).

Payment of Dividends

One major reason why Company X has not paid dividends despite being in operation for some years is that it may be experiencing rapid growth. During this period, the directors of the company believe that it is better to reinvest back profit and grow the business rather than pay dividends. Therefore, if the company needs cash to pursue other viable projects, then it will not pay dividends. The second reason is that the business model of the company may not allow it to pay a dividend. A company such as Berkshire Hathaway does not pay a dividend because its policy dictates that profit should be used to acquire other businesses. The final reason is that a company may be facing poor financial performance. This may limit the ability to pay dividends.

One major advantage of paying dividends is that it increases investors’ confidence. Besides, new investors find companies that pay a constant dividend to be attractive. Such stock is considered as value stocks. Further, the payment of dividends is a better way to use excess cash when a company runs out of investment opportunities. It eliminates the possibility of investing in non-profitable ventures. Finally, payment of dividends can be an indication that the management is not using creative accounting because the payment of dividends requires sustainable cash flow (Clarke, 2012).

When a company can invest all excess cash in profitable ventures, then an investor can gain a lot in terms of higher share prices than when collecting dividends as in the case of Berkshire Hathaway. Secondly, payment of dividends reduces available cash and limits the ability of a company to grow. Also, taxes are paid on the entire dividend unlike the case of capital gains. Finally, payment of dividends requires a lot of logistics which may be expensive for the company (Clarke, 2012).

References

Clarke, E. A. (2012). Accounting: An introduction to principles + practice (7^th ed.). South Melbourne, Victoria: Cengage Learning Australia.

Collings, S. (2016). UK GAAP financial statement disclosures manual (1^st ed.). Chichester, West Sussex: John Wiley & Sons Ltd United Kingdom.

Drury, C. M. (2013). Management and cost accounting. New York, NY: Springer Publishers.

Horner, D. (2013). Accounting for non-accountants (9^th ed.). New Delhi, India: Kogan Page Ltd.

Tracy, J. (2013). Accounting for dummies (5^th ed.). Hoboken, NJ: John Wiley & Sons, Inc.

Viney, C., & Phillips, P. (2015). Financial institutions, instruments and markets (8^th ed.). Maidenhead, Queensland: McGraw-Hill Education (Australia) Pty Ltd.

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