Studying the case of Janet Janitor business
Introduction
The owner of the company should be careful about all the activities in the company. He should check the facts to make sure that there is no fraud. After collecting the evidence, he has to check the resources as well. It is necessary to analyze the gross profit and check what comes of that. Verification is essential for a successful business. A proper budget should be made. There must be a balance between the revenue and the expenses. The challenges in the market should also be kept in the mind when starting a business. Careless companies can not sustain themselves in the market due to the competition.
There are a lot of problems in the business of Janet Janitors. The issues need to be resolved immediately to get success in the market. Otherwise, it will be difficult for the company to sustain itself because it is facing the loss.
Analytical methods and objectives
By studying Janet Janitor’s business, I found the financial problems of the company. The financial irregularities show that there are serious problems. The workers could be engaged in accounting fraud. In the case of the horizontal and vertical analysis, ratio analysis and other index are used to check the account balance sheet of the company and income statement. I focused on observing the dollar change trend to tell that what accounts need more inquiry.
I also noticed that there was a large management oversight happened in the company. The administrative assistants were given a lot of financial rights that could manipulate the entire accounting part. There was no presence of internal and external audits that exist in the company to check the financial accounts of the company.
Factors responsible for the problems
Many factors are causing various problems in the company.
Irregulations in financial statement
By checking the balance sheet of the company and income statement, I detected some irregulations that occurred in accounts.
Accounts cash
The ratio analysis suggests the cash account having problems. During year four and year 5, the balance sheet shows that the local assets are not equal to the total liabilities and equity. There is a difference of $17,000 that needs to be investigated. The horizontal analysis shows that in year two and year 4, there was a vast amounts increase in the charges of a bank account.
Accounts receivable
Comparison of Dun and Broadsheet’s average period of the collection shows that account receivable is lower than the average of the industry. The account payable is not perfect. The investigation is required for the second, fourth, and fifth year. There is a significant drop in the first and second years. In the first year, the of the payable accounts in the current liability was 28.85%. A great drop occurred in the second year of 5.64%. Accounts needed to be checked with a correlation along with the supply. Payable accounts did drop and enhance following the supplies inventory. This was possible to resolve by keeping track of the orders and supplies like before. The account refers to the liability. Janet should have tried to check the growth. It was necessary to have an invoice approval to resolve the problems. The position could have authorized invoice payments. There could be a purchasing department to issue orders for all purchases.
Variations in the assets
The total number of current assets displays variations in different years. It looks that some things caused the change like cash and supplies inventory. After one year, there was a significant dip in the stock of supplies. Then, it started rising. In the fifth year, the cash increased from 13.88% of the current assets to 32.69%. It is suspicious. Investigations were needed in the second, fourth, and fifth-year due to the significant gaps which were made. This could be due to the too less orders in year one, but also a lot in the other years. It was necessary to keep a check of the inventory to know what is utilized more frequently. Other controls should manage all inventory to organize, sign to remove the inventory, and lock up the inventory.
Inconsistency of the cash
The main culprit of the current assets is cash. It was consistent in the first and second years and doubled in the third and fourth years. In the fifth year, it dropped a little. In the third and fourth years, the percentage of the current assets was 19.2% and 36.93%. The fourth-year needed investigations because there is a significant change. Having cash as a tremendous asset is dangerous. Here it was best to place a camera to check the area where the money is kept. The money needs lock and keys, and only honest people should be allowed to handle the cash. Internal control requires to separate the duties along with cash reconciling.
No check on long term investment
Under other assets, it was necessary to look at the long term investment into more details. Notably, the second and third years require to be investigated. In the first, fourth, and fifth years, the account is empty with no evidence to display in dollars. In the second year, the account moves to $30,000, along with 15.3%. In the third year, the account was adding $20,000 for the previous year and then moved to $50,000 with 23.61%. There is hardly a change in the sent deposit for the account. Few simple causes might have occurred. The person who was performing the audits had a tough time without knowing that what the asset of the plant was and what the expenses were. The best control for the problem was to have a policy of capitalization. The capitalization policy ensures that all the assets are operated similarly consistently. The other solution could be to have a process for the purchasing of asset authorization.
Depreciation
Under the category of the expenses, depreciation is observed to be an account to be checked. In the first and second years, the account was close to being the same, almost 12 to 15 percent of the total expenses. In year three by 5, there is a drop in the account. It moves from a bit over $60,000 to $14,233 in the fourth year and $25,233 in year five. The percentage is small at the places but looks least in the fourth and year five. Mostly, depreciation is taken for a similar asset. The real problem was the acceleration of the depreciation too fast. This drove the value down on the balance sheet. To avoid this, proper acquisition of the calculations of costs that are recorded as required. There should be a selection of the method of depreciation to find out the asset value with time.
Conclusion
Taking action immediately is the main requirement. All the problems that are the cause of a loss for the company should be removed. There should be a check and balance on all the activities in the company. New strategies should be made through proper planning. Market competition should also be considered wisely. The loss could be recovered only when the owner keeps an eye on all the activities in the company. All the workers have to perform best. They must be honest and loyal to the company.