Guillermo Furniture Store

Guillermo Furniture Store Concepts

Portia Boyd

University of Phoenix

Abstract

According to Emery, Finnerty and Stowe, several principles affect a decision of a business.

These principles are

* Two-Sided Transaction

* Incremental Benefits

* Risk-Return Trade-Off

* Behavioral Principle

* Signaling.

In this paper I will determine which principles are used in this current situation. Guillermo Novellas is the owner of a of a furniture store located in the beautiful vacation spot of Sonora, Mexico. This furniture store supplied its timber to produce a variety of tables and chairs. In addition he priced his handcrafted products at the slight premium for the quality the representative although labor was relatively inexpensive. Guillermo has cornered the market of furniture with not competition. This allowed for a very good life style for Guillermo.

Two-Sided Transactions

“The two-sided transaction recognizes that the accounting system always records two sides of every transaction, a debit and a credit, and there are real people or real firms on each side of the transaction.” If Guillermo decided to become a distributor for the second company this principle would be used as both sides would benefit.

Incremental Benefits

“Incremental benefits use financial statements and accounting systems to help identify and

Estimate the incremental expected cash flows for making financial decisions” (Emery, Finnerty & Stow, 2007) the only reason why Guillermo should conduct business with the competitor is if it will benefit from existing distributor networking. Guillermo may be willing to work with the other company but he must make a profit.

Risk-Return Trade-Off

“Risk-Return Trade-Off keeps in mind that managerial decisions are based on future risks and returns. Accounting tends to measure historical or past returns. Consequently, many decisions require information and perspectives that are unavailable from the accounting...