Big Basket LLC: Accounting Report and Financial Analysis

This report provides a comprehensive overview of the accounting practices and financial strategies of Big Basket LLC, a retail outlet operating as a Limited Liability Company. The report begins with an introduction to the business and the rationale behind choosing the LLC structure, highlighting the benefits of limited liability and flexibility. It then explores various financing options, including venture capital, angel investors, and commercial loans, evaluating their suitability for the company's needs. The role of accounting in providing financial information to stakeholders is discussed, along with a detailed chart of accounts and the use of special journals and subsidiary ledgers for efficient record-keeping. The report also covers the adjustment and closing of accounts, emphasizing the importance of monthly and annual financial statements. Finally, it addresses management's considerations regarding profit distribution and retention. The report aims to provide a complete financial picture of Big Basket LLC, covering all critical aspects of accounting and finance.

Bachelors of Accounting

Table of Contents
Introduction................................................................................................................................4
Reason Behind choosing Legal form of business......................................................................4
Different financing options........................................................................................................4
Role of accounting.....................................................................................................................6
Chart of accounts........................................................................................................................7
Special journal and subsidiary ledger........................................................................................8
Adjustment and closing of accounts..........................................................................................9
Consideration taken by management Regarding Distribution As well as retaining of profits...9
References................................................................................................................................10

List of Figures
Figure 1 Account chart of Big Basket Limited Liability Company...........................................7

INTRODUCTION
A retail outlet named Big Basket will be established. The products provided at the store will
be groceries (it will comprise fruit, meat, packaged food and vegetables), health and beauty
products, household products, stationery item, baby items. The main focus will be given to
household products and health and beauty products. The household product will comprise
Non-stick cookware, Mothballs, Air Fresheners, Oven Cleaner, and other goods which are
usually used in a living room, kitchen, bathroom and bedroom. Further health and beauty
products will comprise Cleanser, Moisturizer, Mask, Scrubs, Astringents etc. along with oral
care products. The big basket will operate as a retailer who usually sells amount to general
public and purchases from manufacturer or wholesaler. Big Basket will be registered as a
Limited Liability Company.
REASON BEHIND CHOOSING LEGAL FORM OF BUSINESS
Legal structure shapes the journey of business and choosing an appropriate structure to
require time as well as consideration. Even though many choices of business entities are
available, but each one has its own pros and cons. The reason behind incorporating Big
Basket as a Limited Liability Company is that it a hybrid structure which permits owners,
partner as well as shareholders to limit their personal liabilities. However, at the same time
specified legal form is able to take advantage of tax and the flexibility of a partnership. The
main advantage which is available to an organization registered as LLC (Limited Liability
Company) is that member of the company is protected from personal liability relating to the
debts and outstanding of the business to the extent same can be proven that they have
operated transactions or taken decision in an illegal, unethical or irresponsible manner.
Further, a limited liability company provides more protection as well as separation to
business in comparison to sole proprietorship and moreover it is also referred to as a
combination of corporation and partnership. As personal assets and assets of the company are
separated in most of the scenarios and profit and losses are not taxed at the corporate level.
The owner can split corporate profit among owners and corporation and overall it is required
to pay a lower overall tax rate. Even benefit relating to the separate taxable entity is also
available.

DIFFERENT FINANCING OPTIONS
Financing can be referred to as the elements required for initiating as well as for enhancing it
up to profitability (Barr and McClellan, 2018). A variety of sources are available which are
assessed by businesses. However the choice depends on the quantum of the amount required
and when you require it. Debt and equity are believed as two significant sources of finance.
Equity Financing
Venture Capital: According to Bay (2018), venture capital can be specified as financing
which arises from organizations or individual persons who usually invest in young, privately
held business. Further, they provide capital in exchange of ownership share of the business.
Usually, they provide funds to only those organizations in which owners or founders have
applied sufficient funds.
Angel Investors: Angel Investors are individuals and business which help and support small
business to grow as well as survive. As per the study of Steingold (2017), their objective is
not only to earn economic benefits but more than that. However, angel investors are also
interested in the security of their investment and return thus they might also demand in the
same manner as a venture capitalist.
Owners, Friends and Relatives: If the support of friends and relatives is available in new
business than it provides a strong base for funds. Moreover, funds can be attained in the form
of equity financing in which the person who is providing funds receives an ownership interest
in the business.
Debt Financing
Bank and other Commercial Leaders: Bank and commercial lenders are commonly used for
financing purpose in any business. It is not easy to attain at the initial level of business.
However, once the company had initiated its business, it can attain support from the bank in
the form of commercial loan for its operation in the form of overdraft limit or loan. However,
it provides funds on the basis of the cash flow statement, net worth detail etc.
Commercial Financing Companies: As per the study by Bekaert and Hodrick (2017),
commercial Finance companies might be taken into consideration at the time when the
organisation is not able of raising funds from other sources. Further, these types of companies
used to depend highly on the quality of security in order to repay the loan than the track

record or profit projectors of the business. In addition to this, it must be kept in mind that the
companies which are not having substantial personal assets, commercial finance is not
suitable for them to secure funds. Along with this, the costs of finance company funds are
higher in comparison to other commercial lenders. Thus, in order to raise funds from this
alternative, it is important for the company to be financially strong and have its own personal
assets otherwise can’t utilise this alternative.
For initiating venture, the capital option will be availed as along with funds assistance of
experienced person will also be attained. The reason behind opting this option is that venture
capitalist emphasize on developing an investment portfolio for the business having enhanced
growth potential which eventually results in higher returns. For daily operation, the
commercial loan will be applied, and the limit for the same will be decided in accordance
with the requirement of funds for working capital.
ROLE OF ACCOUNTING
Accounting refers to a process which is utilized by companies for a variety of reasons. The
procedure of accounting comprises recording of all business transactions which take place in
an organization and also summarizing the information (Hatfield, 2014). Subsequently, it
categories people then utilize information. Further, an organization can do accounting either
manually or by using software of the same. Moreover, good accounting is important in the
same manner as good sales are significant for the organization. Accounting plays a key role
as it provides financial information related to the organization to stakeholders as well as to
the directors for example profit for sales, the cost of benefits as well as the amount that
company owe from the suppliers. It is important for the company to get the information
regarding a financial position from the accountant since without this executives will not be
able to make appropriate decisions. Financial accounting comprises all business transactions
and summarizes the value of same son financial reports at the end of every month and year.
Further, stakeholders of the company evaluate the financial position of the company.
Stakeholders involve banks, stockholders, shareholders as well as personnel of the
organization. The same information is utilized by stakeholders to make decisions related to
the leading and investment.
When the company is vending products, they feel that they are performing very well, but the
real picture of the company is reflected in its financial reports. Further, if the cost of sale is

high, then it will decrease the profits (Karadag, 2015). At the same time, if all the sales are on
credit, it implies that the company is not having sufficient cash in hand to reimburse its
suppliers or power bill. In addition to this, accounting gives the information related to the
finances so the company can know when it has money to burn and when to be careful in the
expenses. It also plays a significant role for the tax purpose. As per the study by Oprean and
Podoaba, (2016), with the help of accounting the financial information could be recorded
accurately which will lead to an easy estimation of taxes. The financial details are transmitted
from the software of accounting to correct tax forms. Apart from this, it is very helpful in
paying taxes, comprising sales taxes, payroll taxes as well as quarterly calculated taxes.
CHART OF ACCOUNTS
Figure 1 Account chart of Big Basket Limited Liability Company
Big BasketCompany
Assets
Cash
Current Asset
Fixed Asset
Liabilities
Non-Current
Liabilities
Current
Liabilites
Owner's
Equity
Owner's
Invested
Funds
Retained
Earinigns
Income
Sales of
Goods and
Services
Expenses
Advertising
Office
Supplies
Payroll Other
Expenses

The accounting chart of the company comprises five main parts that are asset, liabilities,
owner’s equity, income and expenses. Further, the section of assets comprises cash,
inventories and equipment. Thus, any changes in these will be accounted in the part of
assets. In addition to this, the liabilities part will consist of auto loans, mortgage the and sales
tax payable and another current as well as non-current liabilities. Subsequently, there is
owner’s equity which included funds invested by the investors as well as the retained
earnings. Moreover, according to Storey (2016), retained earnings refer to the revenue earned
by the company, less any dividends or other payments to investors. After the owner’s equity,
there is the income section which includes sales of goods and services which will provide
information relating to the value of stakeholders of the organization. Apart from this, the
revenue generated from sales of goods and services are recorded in the income section.
Lastly, expenses account which comprises all the expenditures incurred by the company such
as expenses on an advertisement, office supplies and payroll.
SPECIAL JOURNAL AND SUBSIDIARY LEDGER
Special Journals are developed in order to account most frequently transaction in a simple
manner (Petty, Titman, Keown, Martin, Martin, and Burrow, 2015). The four types of the
special journal are sales journal, cash receipts journal, purchase journal and cash payment
journal. Big Basket Company will require a special journal in order to ascertain information
relating to total sales of the company as well as to assess the trend of sales. Moreover, the
cash payment journal will provide information relating to cash expenses as well as the total
outflow and inflow of cash in each month. With this information, the company will be able to
know the quantum of cash required to make available by hand or Bank so that operations can
be conducted in a smooth manner.
A subsidiary ledger is referred to as a group of accounts having similar nature, and further,
their balances are added and present in a specific general ledger account. The general ledger

account which provides a summary of subsidiary ledger account is also known as control
account. For example, the subsidiary ledger of accounts receivable which contains all the
information relating to each of credit sale transaction held by company, i.e. amount of credit
sales, amount received relating to credit sales from the customer, return of merchandise, sales
return etc. Big Basket Company will require same it will be able to attain periodically
summarized information for recognizing same in general ledger.
ADJUSTMENT AND CLOSING OF ACCOUNTS
It is stated by Sekaran and Bougie (2016), that, the adjustment of accounts and closure of
books should be made at the end of each month. However, the minimum time period in which
accounts of on organization required to be closed in annually as the LLC required to file an
income tax return. In order to file the return, Big Basket LLC will be required to prepare an
annual financial statement which requires that closing balance of all the accounts. The
company will adjust and close its books of accounts at the end of each month and will send
statements to the customers; payments will be made to suppliers as well as another task such
as bank reconciliation will be done. The practice of closing books of accounts at month end
will provide ease in making a final adjustment at the end of the year (Singer, 2018).
CONSIDERATION TAKEN BY MANAGEMENT REGARDING
DISTRIBUTION AS WELL AS RETAINING OF PROFITS
With accordance to Simona-Florina and Corina, (2015), sustainable capital management is
referred as a key focus area of Board of management as a company requires managing
internal capital needs as well as returning profit to the shareholders. In the case of Big Basket
LLP, capital management strategy will change as per time in accordance with time response
to the business life cycle and macro environmental factors. The elements which will be
considered to decide whether to distribute profit or to transfer in retain earning are the
whether the LLP can pay a dividend, and the current needs have company. An LLP can
distribute profit as a dividend only if it satisfies key principles of section 254T of
Corporations Act. Further, in case it requires additional amount as internal financing than
same might take the decision to not to distribute profit even in case of sufficient profit during
the year.

REFERENCES
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