Midax is an advertising agency that aims at acting as an interface between media houses and clients. In this case, the duties of the firm will involve development of ads, programming, and seeking placement of ads on T.V and radio stations depending on the target market.
Challenges that small businesses face
Small businesses face a number of challenges in maintaining accurate and timely financial statements. First, small businesses normally lack enough financial resources to engage professional accountants. This leads to the small businesses engaging semi-skilled or totally unskilled personnel in recording, processing and producing books of accounts prone to errors. The other challenge is that given that most of this businesses lack financial resource, multi-tasking for staff is the order of the day. Ideally, when staff performs almost four distinct tasks then timely financial statements may not be obtained. For instance, the accountant may also be the HR officer, sales officer, and administrator. Additionally, most small businesses do not understand the type of books to maintain. This is mostly out of ignorance. Moreover, it is possible that these small businesses fable before preparing the correct books of accounts. This means, most times the entries are either erroneous or incomplete leading to lost precious time which results in delayed financial statements. In addition, most of the small businesses normally afford engaging fresh graduates or high school leavers. Such staffs lack the necessary skills and experience that is needed in preparing accurate and timely financial statements.
Development of Chart of Accounts
Chart Accounts is a list of accounts that indicates the class of item in which monies or equivalent of monies are paid or received. The chart of accounts assists an organization to organize its finances hence segregating the revenues, expenses, and assets together with liabilities. The purpose of this is to ensure that interested parties obtain good understanding concerning the business’s financial health. The listing is made in such a manner to ensure that debits and credit values of the ledger accounts are captured. The following is the chart accounts of Midax Advertising agency.
Chart of Accounts of Midax Advertising Agency ($)
1001 Capital Liability 200,000
1002 Loan from XYZ Liability 100,000
2001 Land Assets 65,000
2002 Cash at Bank Assets 45,000
3001 Purchase of stationery Expense 5,000
3002 Purchase – Equipment Expense 75,000
3003 Wages for Actors Expense 1,800
3004 Interest Payments Expense 11,200
4001 Sales of ads Income 15,000
4002 Commission on Sales Income 7,500
4003 Royalties from ads Income 11,200
Midax Trial Balance
Midax
Profit and Loss Account
For the period ended 15th Feb 2012
Amount
Sales 15,000
Cost of Sales (5,000)
Gross Profit 10,000
Other Operating income
Commission of sales 7,000
Royalties from ads 11,000
Other Operating Expenses (14,000)
Operating Profit 14,000
Less Other Expenses
Administrative Expenses (10,000)
Wages of Actors (1,800)
Sales and Distribution Expenses (16,000)
Finance Cost-Interest payments (11,200)
Net Profit (25,000)
Midax Balance Sheet as at 31st December 2012
Fixed Assets: Cost Accumulated Depreciation Net Book Value
Land 65,000 – 65,000
Company Van 100,000 (10,000) 90,000
Printing Equipment 75,000 (15,000) 60,000
Current Assets
Accounts Receivable 2,000
Cash at bank 45,000
Cash at Hand 15,000
Total Assets: 277,000
Capital 200,000
Retained Profit (25,000)
Long term liability
Loan from XYZ bank 100,000
Shorterm liability
Accounts Payable 2,000
Total liabilities 102,000
Total Capital and Liabilities 277,000
In conclusion, Midax Advertising agency is a highly viable company. The company has a healthy balance sheet. Besides the $100,000 loan it only has one other liability which is the capital. In the same regard, it is operating in an industry that is highly profitable. This is because the operating expenses are not very numerous. Finally, the viability of the business is very high.