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Financial Management Issues
In the Octane Services Station case study, it is necessary for the lessee, Julio Trevino to establish an accounting system so that he tracks information in order to provide for a unified method of accounting for all financial transactions as they occur. This practice gives him a way to keep a record, or to give an accounting for his financial transactions.
According to Gapenski (2008) there are benefits to proprietorships. It can be easily formed, subject to few regulations, and no corporate taxes. All earnings of the business, whether reinvested in the business or withdrawn by the owner, are taxed as personal income to the proprietor.
With benefits come disadvantages as well. Selling the business may be difficult and the life of the business is limited to the life of the owners. Another disadvantage is that the owner has unlimited personal liability for the debts of the business, which can result in losses greater than the amount invested in the business. In a proprietorship, unlimited liability means that the owner is personally responsible for the debts of the business. A major disadvantage is that proprietorships have difficulty in attracting substantial amounts of capital (Gapenski, 2008). The business may miss opportunities to grow the business.
There are concerns presented in this case. Such concerns include, possibly under estimating the gas station forecasted financials, under capitalizing, lack of operational gas station experience, and not including risk factors into a gas station business plan.
An accounting system offers a method for checking, balancing, and reconciling all those transactions in order to produce accurate pictures of the financial health. Balance sheets, and income statements are the end result of compiling all the transactions into meaningful, usable information for individuals and business owners alike. The balance sheet tells how...
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