Assignemnt 4-Red Flags Ab298

Assignment 4:Red Flag’s

Red Flag 1

Although the revenue on snack food decreases every year, the cost of goods sold increases every year.

The price on the snacks that are sold need to be raised, because as the cost of the goods increase the revenue you earn decreases. If you don’t increase the price in snacks the vendors, which you purchase the snacks from will continue to increase and you will continue to spend more and make less. Unless, you find another vendor for a cheaper cost but if you don’t the price should rise enough to cover the cost to buy the snack and make the company profit.

Red Flag 2

Some of the items in the gift shop appear dusty and “shopworn.”

The gift shop should always remain in good condition, and well presentable. This may not affect the shop directly, but it definitely is an indirect effect. When keeping the gift shop dusted, clean, and presentable it allows people to see what the gift shop has to offer. This helps attract more customers, which means more sales.

Red Flag 3

In your examination of the financial statements, you see that there is a bank loan on the books. The average balance of the loan is $14,000 at the beginning of the prior year, and $10,000 at the end of the prior year. The interest expense on the income statement for the year is $1,560.

This is something that isn’t preventable you still have to pay interest on the loan. So you could either pay the money off to help save interest build up, or you could try to find another bank with a lower interest rate. In most cases the loan should be paid off early to prevent paying more interest, but this is a non-profit organization so paying interest on a loan is definitely unusual and could be difficult to pay off.

Red Flag 4

The balance sheet shows that the checking account has over $20,000 in it, and the account does not pay interest. The gift shop does not have an interest bearing account.

The checking account should be a bearing account being a non-profit...