Chic Paints Ltd Essay Sample
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Introduction of TOPIC
This report has been written using information gathered from the accounts staff at Chic Paints Ltd. A brief overview about each accounts employee, an overview of the accounting system and a list of events that have occurred over the past six months can be found in the company diary. 3.2 A SWOT Analysis of Chic Paints Ltd has been produced to find out any strengths, weaknesses, opportunities and threats to Chic Paints Ltd. The SWOT Analysis can be found in Appendix 1. 3.3 A Fraud Matrix has been produced to investigate the risk for fraud to occur within Chic Paints Ltd. The Fraud Matrix can be found in Appendix 2.
An ethical review of Chic Paints Ltd has been carried out to make sure the company meets the five fundamental principles of ethical conduct and the AAT Code of Ethics. 3.5 A sustainability review of Chic Paints Ltd has been carried out to make the company meets the sustainability principlaes in regards to social, corporate and environmental issues. 3.6 This report has also been written using information which has been obtained from the internet to make recommendations on how to improve the accounting system. A full list of websites can be found in Appendix 3.
Chic Paints Ltd was formally a part of Ashstead PLC before the management buyout in 2007 where the company manufactured and supplied goods to the household paints market. After the management buyout in 2007 Chic Paints Ltd decided to move away from the household paints market and move into a more niche market manufacturing and supplying specialist paints used on boats, cars and industrial machinery due to a less competitive market and higher gross profit margins even though Chic Paints Ltd required increased capital expenditure on specialist equipment and a higher skilled workforce. 4.2 Six years on from the management buyout Chic Paints Ltd have steadily reduced the company turnover from £200 million in 2007 to £120 million in 2013. Even though the turnover has reduced the gross profit margins have improved from around 12% in 2007 to around 30% in 2013. Net assets over the same period have increased from £20 million in 2007 to over £25 million in 2013.
Chic Paints Ltd currently employs around 350 employees. 4.3 Chic Paints Ltd is currently comprised of five company directors who are the heads of each department. A breakdown of the five company director’s shareholdings and line management responsibilities can be found in Appendix 4 and an organizational chart can be found in Appendix 5. 4.4 Chic Paints Ltd internal stakeholders are the shareholders and employees of the company. The main interests of each stakeholder are as follows: 4.5 Shareholders – The shareholders at Chic Paints Ltd are interested in the company making a profit by reducing costs and improving revenue for an increased return in the investment made by receiving higher dividends. 4.6 Employees – The employees at Chic Paints Ltd are interested in how well the company is performing to make sure jobs are secure and wages are being paid. 4.7 Chic Paints Ltd external stakeholders are suppliers, customers, environmental agency, HMRC and the bank.
The main interests of each stakeholder are as follows: 4.8 Suppliers – The suppliers of Chic Paints Ltd will be the manufacturers of goods used to make Chic Paints Ltd paints and products and would want to ensure that the company continues to trade with them for supplies and that prompt payment for supplies is made. 4.9 Customers – The customers of Chic Paints Ltd are interested in purchasing from the company and for a good service to be provided by receiving goods on time when required at a reasonable price on good credit term. 4.10 Environmental Agency – The environmental agency are interested in making sure Chic Paints Ltd are complying with laws and regulations. 4.11 HMRC – HMRC are interested in making sure Chic Paints Ltd are complying with HMRC’s regulations 4.12 Bank – The bank is interested in acquiring Chic Paints Ltd financial accounts to see how the business is performing. The bank will need to make sure that Chic Paints Ltd can pay an overdraft on time or meet loan repayments.
5 Overview of the Accounts Department
5.1 The Accounts department is responsible for all aspects of accounting at Chic Paints Ltd which includes the purchase ledger, sales ledger, credit control, up keep of the general ledger, payroll and costing. The Accou
nts department consist of eight employees including the Finance Director, Chief Accountant, Accounts
The annual company reports for Chic Paints Ltd including its statutory accounts are produced by the Finance Director. 5.3 The Chief Accountant is the Finance Directors deputy who is responsible for the day to day running of Chic Paints Ltd’s Accounts department. The Chief Accountant’s work involves supervising the work of the accounts clerks who run the transaction accounting system on the general ledger, accounts payable ledger and the accounts receivables ledger. The Chief Accountant also supervises the work of the Costing Technician, Payroll Clerk and Accounting Systems Technician. The monthly management accounts are produced by the Chief Accountant and performance variances are reviewed with department managers before being reviewed and agreed with the Finance Director. The management accounts are then issued to the board members and senior management.
The Chief Accountant also produces the annual budget based on the information which the budget holding department managers input to the Accounts department. 5.4 The Accounts Receivables department consist of one employee who is responsible for the accounts receivables ledger and credit control at Chic Paints Ltd. The Accounts Receivables Clerk and Credit Controller are responsible for all data entry into the receivables ledger which involves raising sales invoices by using the goods dispatched list as a trigger. Sales invoices are sent out on a weekly basis. Credit notes are raised using a credit note request approved by the relevant Sales Manager and those over £2,500 by the Sales Director. Statements are issued on the last trading day of each month. All cheques from debtors are banked on a daily basis.
The Accounts Receivables Clerk and Credit Controller is also responsible for carrying out Chic Paints Ltd’s credit control procedures which involves making online credit checks using Experian on all new credit customers and recommending a credit limit to the Finance Director and to the relevant Sales Manager. The Accounts Receivables Clerk and Credit Controller have the authority to grant credit limits of up to £25,000 per customer after a one month cash sales trial period. Any increase above £25,000 will be referred to the Finance Director for a decision. An aged debtors report is produced once a month and any debtors outstanding more than one month are reviewed with the relevant Sales Manager. Any outstanding debtors more than two months are reviewed by both the relevant Sales Manager and Sales Director. Outstanding debts are chased by the Accounts Receivables Clerk and Credit Controller by a combination of telephone calls, emails and letters. The Accounts Receivables ledger transactions are updated monthly and spreadsheets are used for credit control.
The Accounts Receivables Clerk and Credit Controller has been at Chic Paints Ltd for two years and does not have any accounting nor credit control qualifications but has expressed an interest in acquiring some form of qualification in either area. 5.5 The financial accounting system at Chic Paints Ltd was originally an integrated part of Ashstead PLC‘s tailored IT system and was replaced at the point of the management buyout. Chic Paints Ltd started to use Microsoft Excel spreadsheets instead of an integrated accounts system. The accounts ledgers were bought as a tailored system for the company to use with Microsoft Excel. Chic Paints Ltd accounts system consists of eight computers, one for each full time employee. All transactions are recorded in Microsoft Excel spreadsheets and are updated monthly to the general, accounts payable and accounts receivable ledgers that run on the proprietary software specifically written for Chic Paints Ltd.
The general ledger allows Chic Paints Ltd to produce a trial balance and provides financial reports including audit trial, cash flow, income, budgetary information and other key financial indicators. The accounting system also includes an inventory control system which is used to book in goods received into the warehouse and to issue good to the production areas, a stand-alone full absorption costing system used by production, a standard cost and variance analysis system which is used to monitor and control Chic Paints Ltd monthly performance and Sage 50 Payroll system used by HR to pay employees and to store employee records. 5.6 As a limited company, one of the purposes of Chic Paints Ltd’s accounts function is to satisfy the requirements set out by “Financial Reporting Council”. By law Chic Paints Ltd must produce a set of financial statements annually for submission to Companies House. These statements are as follows: 5.7 Statement of Profit or Loss (P&L) – The Statement of Profit or Loss is produced to illustrate Chic Paints Ltd’s revenue and expenses during a particular period to see if a profit or loss has been made over the last financial year.
The Statement of Profit or Loss will give Chic Paints Ltd an indication on profitability and financial performance. The Statement of Profit or Loss can be used to help identify to the shareholders whether an acceptable and sustainable profit has been made. 5.8 The Statement of Financial Position (SOFP) – The Statement of Financial Position is produced to illustrate Chic Paints Ltd’s assets, liabilities and equity at a given date. The Statement of Financial Position will give Chic Paints Ltd a snap shot of the company’s current financial position and help show the liquidity. The bank would use the Statement of Financial Position as part of the decision making process in allowing Chic Paints Ltd to have an overdraft. 5.9 The Statement of Cash Flow – The Statement of Cash Flow is produced to illustrate the amount of cash and cash equivalents entering and leaving Chic Paints Ltd.
The Statement of Cash Flow is designed to complement the Statement of Financial Position and the Statement of Profit or Loss to view and understand how Chic Paints Ltd operations are running. The Statement of Cash Flow helps the company’s director and management to see the liquidity position of Chic Paints and how cash has been used. 5.10 The above accounts are produced in line with the UK financial standards set out in “UK Generally Accepted Accounting Principal” or international standards “International Financial Reporting Standards” and must comply with the rules stated in the Companies Act 2006. 5.11 Chic Paints Ltd will have to comply with various regulations.