Financial Analytic for Managerial Decision

Running Head: FINANCIAL ANALYTIC FOR MANAGERIAL DECISION
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1
FINANCIAL ANALYTIC FOR MANAGERIAL DECISION
Answer to Question 1:
Adherence to the accounting standards and principles is the framework upon which
the treatment of the finances of any commercial business entity or any other entity engaging
in any form of commercial activities, is regularly done. These accounting principles and
standards, help in ensuring the authenticity to the treatment of the different transactions,
which have been undertaken by the business entity. Similarly, in the case of a gym,
membership becomes a very integral part of its financial transactions, as it provides services
in exchange for these fees, thus forming a significant part of their entire revenue system. In
the case of the gym, membership fees must be treated with the adequate amount of financial
prudence, which is expected in these kinds of matters.
In the case of the membership fees which has been received in advance, it would be treated as
a liability until and unless the service is being provided to the client. Under the accrual
concept of accounting, revenues and expenses are recognised only when the former is
realised and the latter one is paid (Bushman, Lerman and Zhang, 2016). Although many
small businesses, opt for cash basis of accounting, for maintaining simplicity, but it is the
authenticity and the accuracy, which is provided by the accrual basis of accounting, which
makes it one of the most followed form of accounting concept. Cash basis of accounting,
might be simple in its format and treatment, but it fails to provide the correct state of affairs
of the business (Cohen, Kaimenakis and Venieris, 2013). It is not useful for those types of
cases, where transactions on credit takes place on a comparatively regular basis.
When the client pays his or her membership fees twelve months upfront, then in such cases, it
is recommended to treat it as a liability in the financial statements, as the services for those
twelve months has not been provided by the gym to its client, it is due, it has not been
provided (Forbes.com, 2018). For the current time period, the transaction would be