Comprehensive Financial Audit Report for Cynthia’s Beauty Salon

This report presents a financial audit and analysis of Cynthia’s Hairdressing & Beauty Salon for the year 2017. It covers key aspects such as the selection of an appropriate business structure, considering factors like control, cost, tax implications, and ongoing administration. The analysis discusses the advantages and disadvantages of different business structures, including sole proprietorship, partnership, and company formation, in relation to the salon's specific needs. Furthermore, the report outlines essential financial and non-financial information required for the business, including capital requirements, budgeted costs and revenues, market rates, competition analysis, and target customer details. It also identifies necessary accounting and supporting systems, such as accounting software and hardware, and emphasizes the importance of adhering to accounting assumptions like the going concern principle, accrual concept, consistency, and matching concept. The report further discusses potential capital expenditures, funding options, and the significance of budgeting for the salon's success, recommending a 1-3 year budget horizon to account for initial uncertainties. Desklib provides a platform to explore similar documents and enhance your understanding.

Audit
2017

1
By student name
Professor
University
Date: April 7 , 2018.
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Contents
Analysis…….…………………………………………………………………........................................................3
Refrences.....……………………………………………………………...........................................................8
Cynthia’s hairdressing and beauty salon.
1. A lot of factors needs to be kept in mind while selecting a business structure for any company.
The most important of these factors being-
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 Control – The level of control that the founders wants to have on the incorporated
business. There can be various business structure like sole proprietorship, partnership,
and company formation. It is important to select the best business type that suits the
needs of the owner.
 Cost and complexity of formation of the legal structure- Setting up of business includes
large amount of cost and legal matters that needs to be addressed, hence that must also
be considered.
 Tax Implication – The business structure would define the type of tax implications that
the business would be entitled to, hence that must also be considered.
 Ongoing Administration – Each business structure needs specific type of planning and
administration, hence that should be also kept in mind (Abbott & Kantor, 2017).
Based on all these factors it can be said that there needs a lot of planning and research before starting
with any business and keeping in mind the type of business structure that the venture would have.
2. The said business would be a partnership, and the company form and the sole proprietorship
business have their own share of advantages and disadvantages. In terms of benefits, the sole
proprietorship has more control but there is unlimited liability associated with it. In case of
company, the structure is more organized and there is less amount of control related issues
associated with it. In case of partnership both the revenues and the liabilities get divided
between the partners.
Financial Information
 The total amount of capital that the
venture will need to start.
 The budgeted cost and revenue
This is important as this forms the base of any
startup company in the world. Without capital
nothing is possible. The management also needs
to important people who will invest in the
company.
This will give the business a vague idea about the
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 The present rate of beauty salons in the
market.
 The overall cost of capital for the
company
expected amount of expenses and revenue in the
coming period.
This will give a vague idea on how much the
company needs to charge from the customer to
maintain some specific amount of profitability.
This will help in understanding the total capital
cost to the company and what is the probability
of returns that can be provided to the
shareholders of the company (Alexander, 2016).
Non-financial Information
 The information about the competition in
the market.
 The details about the target customers.
This will make the company aware about the
competition that it needs to deal with and the
necessary steps that it needs to take.
The company needs to have details about the
target customers so that it can form its core
policies and practices of the business based on
that.
4) The main accounting and supporting systems would be required by the company to provide support
to the company and will help in the day to day operations of the company. The accounting software
would be required to provide support in formation and maintenance of accounts of the company and
formation of the financial statements. This will help the management in better calculation of revenues
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and generation of results. There is various software available in the market that can easily help the
management like Tally, Xero, SAP etc (Dichev, 2017). The company also needs to appoint experts that
have knowledge regarding this software and can help the company in maintaining their data. The
company would also require laptops and computers for accounting purpose and will require machines
that would help in billing and generation of receipts. Since it is a beauty parlor it will require various type
of cosmetics and beauty related gadgets that are used extensively in parlors (Kusolpalalert, 2018).
Hence, we see that the management has to arrange for a variety of systems that they would require
running the business seamlessly without any issues.
5) The major four accounting assumptions are – going concern principle, accrual concept, consistency,
matching concept. All these forms the pillar of accounting and it is necessary to follow them to make
sure that the books of the company are free from all kind of errors. Accounting assumptions and
principles forms the basis of the financial statements and cannot be ignored while preparation of the
books of accounts for the company. Going concern principle signifies the fact that the business is an
ongoing one and it has no plans to shut down in near future. The accrual concept is based on the
principles when should a transaction be recorded for business purpose, when it is accrued or when it is
realized. Hence this helps in accurate revenue recognition for the business and plays an important role
in ascertaining the total profitability of the business. One more assumption is that of consistency which
means that the transactions should be recorded on a consistent basis and there should be no negligence
in the same. All these are very important from business point of view and following of accounting
principles and policies are necessary for any business (Chariri, 2017).
6) The possible capital expenditure that can arise during the business would include getting a place on
rent for the salon, this would be the biggest investment. After that the company needs to get certain
equipment, gadgets, machinery that would be required in the salon. Also, being in the beauty industry
the venture would require a large amount of investment in the beauty products, makeup products, etc.
So, all these would be the initial investment that the company would be required to make. Apart from
the that the company would need to appoint expert staff that would help them in management of their
business, trained beauticians that will help in providing good services to the customers. Also, getting the
business registered and getting all the dealing done would require a large amount of investment. The
owner needs to think of possible ways from where they can boot strap their business and invest in the
company or they can also take loan from the market but this will again increase their overall cost of
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investment in the initial phase. Thus, the management should explore all the possible options before
raising funds and one that is the cheapest method should be applied by the company. The overall capital
structure needs to be defined properly so that the company does not face much issues in the later
stages. The overall level of liquidity should be maintained and while investing in the assets the same
should be kept in mind (Dichev, 2017).
7) Budgeting is an important tool for any business and it will give an overview of the business for the
coming 3-5 years. It is an important tool for the success of any business and will help in gaining overall
knowledge about how the company is functioning and what are the changes that are needed so that the
overall performance of the company improves. It helps the management in deciding which are the
years in which the need to focus so that the overall profitability is more than the budgeted amount. In
case the budgeted amount differs from the actual the company can raise the issue and analyze the
reason of such difference and check whether the company can make more profit or not. It is very
important to take expert advice during this whole process of budgeting and forecasting and generating
the best results possible. The management of the company should try to prepare a budget for a period
of coming 3years, as the venture is a new one, it is not known how will it function in the times to come
(Yadao, 2018). So, it may become difficult to forecast the overall development in the analytics of the
company for a longer period. So, keeping that in mind, the management should design the budget for a
period of coming 1-3 years so that even if there is a lot of fluctuations it can be erased with the help of
this budgeting tool by the company.
References
Abbott, M., & Kantor, A. (2017). Fair Value Measurement and Mandated Accounting Changes: The Case
of the Victorian Rail Track Corporation. Australian accounting Review.
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Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-
431.
Chariri, A. (2017). FINANCIAL REPORTING PRACTICE AS A RITUAL: UNDERSTANDING ACCOUNTING
WITHIN INSTITUTIONAL FRAMEWORK. Journal of Economics, Business and Accountancy, 14(1).
Chron. (2017). five-common-features-internal-control-system-business. Retrieved december 07, 2017,
from http://smallbusiness.chron.com/five-common-features-internal-control-system-business-
430.html
Dichev, I. (2017). On the conceptual foundations of financial reporting. Accounting and Business
Research, 47(6), 617-632.
Kusolpalalert, A. (2018). The relationships of financial assets in financial markets during recovery period
and financial crisis. AU Journal of Management, 11(1).
Maynard, J. (2017). Financial accounting reporting and analysis (second ed.). United Kingdom: Oxford
University Press.
Yadao, J. (2018). Forensic accountants and big data.
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