Analyzing an accountant system Essay Example | Topics and Well Written Essays - 2000 words

Analyzing an accountant system - Essay Example The owner still has a debt obligation towards his relative ($100,000) which when accounted for is severely impacting the revenues generated by the company, thereby resulting in severe losses. The expenses for the purpose of conducting the business are of random nature which does not explain the exact purpose of incurring such expenses. As an example, it can be cited that the owner of MTS spends 40% of its allocated advertisement budget on business lunches involving local theatre producers and directors and the rest 60% is spent on advertising in local newspapers, theatre programs, sponsoring local children`s theatre and delivering flyers to the community. No clear rationale can be identified from this distribution strategy. As is evident from the income statement, the expenses incurred from advertising and promotion contributes significantly towards reducing the revenues generated by the company. For a startup company which is highly leveraged, efforts are needed to be put in order t o reduce the obligations. The company needs to restrict its expenses behind advertising and promotion. ... This is particularly because these are the expenses that are most directly involved in creating revenues. As is evident from the income statement, MTS has incurred huge amount of cost of goods sold as well as administrative expenses with respect to the revenues that the company has generated. The company needs to formulate a more effective strategy in order to bring down the aforementioned expenses. One particular area that is needed to be highlighted in the income statement is the expenses incurred as a result of payment made to the employees. According to the case study, MTS is supposed to book $25,000 as expenses due to payments made to employees. However, the income statement reflects a completely different figure which is significantly higher than the actual figure that is required to be reported. This sheds light on an important concern. The concern arises due to a weaker internal control within the company. The serious error committed while drafting the income statement questi ons the credibility of the accounting official responsible for preparing the income statement. The amount recorded as payment to employees in the year is $90,999 whereas the actual amount that had to be reported was $25,000. Had it been the case, then it would have significantly improved the figure that has been reported in the bottom line. This highlights a massive loophole in the internal control mechanism of the organization. There is no perfect approach towards employing officials who are experienced in the field of accounting. This is evident from the fact that the accounting part is handled by a person who does not have an accounting background and