Financial Accounting A Case Study Of Felicity Flowers

Question: Discuss about theFinancial Accounting for a Case Study Of Felicity Flowers. Answer: Introduction: The overall study mainly focuses on identifying the significance of credit card acceptance, which might help Felicity Flowers Pty Ltd to increase their profits. In addition, the novice effectively calculates the average collection cost, which is spent by the company. Moreover, the study also shows the augmentation of credit card gains, which might help Felicity to earn interest on surplus cash. In addition, the research of Daniel regarding the growth of their competitors after the implementation of credit portrays the needs of strategic development. Preparing a Table for Portraying the Average Credit /Collection Cost of Felicity Flowers Pty Ltd: Average credit/collection cost % Amount 3yr average Monthly average Average monthly receivables $ 40,000 credit sales $ 1,350,000 $ 37,500 Collection cost $ 8,000 $ 666.67 Invoice collection costs 0.54% $ 7,290 $ 607.50 Total Average collection cost 3.19% $ 15,290 $ 1,274 Table 1: Showing the average credit / collection cost of Felicity Flowers Pty Ltd (Sources: As created by author) With the help of table 1, the overall monthly credit collection cost of Felicity Flowers Pty Ltd could be effectively evaluated. In addition, the average credit collection cost is estimated at around $1,274 per month. Furthermore, the average collection cost of sales conducted by the company mainly indicates the high expense. In addition, the bad debt is mainly accounted, which mainly amounts to $1406.25 per month. Thus, it could be concluded that risk from bad debts and increased collection payments might affect the overall profitability of Felicity flowers. Oikonomou, Brooks, and Pavelin (2014) mentioned that with the help of doubtful bad debt provisions and collection agencies companies are able to recover their overall lost cash. On the other hand, Wheelock and Wilson (2013) criticises that maintaining credit sales during an economic crisis might increase the overall debt and reduce their profitability. Portraying the Analysis to Show the Interest Earnings Forgone if Credit Cards were not Introduced: Interest rate earned % Amount 3yr average Monthly average Average monthly receivables $ 40,000 credit sales $ 1,350,000 $ 112,500 Average monthly cash surplus $ 72,500 Interest rate 7% $ 5,075 Total Average monthly interest rate earned on cash surplus $ 5,075 Table 2: Showing the interest earned from deploying credit card scheme (Sources: As created by author) In addition, table 2 mainly helps in depicting the overall interest, which might be earned by Felicity flowers by deploying credit card scheme. Furthermore, the average monthly income cash flow is depicted around $40,000 and surplus of their amount will be invested at 7% p.a. However, after the calculation for 3 year average sales, the monthly sales is depicted to be around $112,500, which helps the company to get a surplus of $72,500 monthly. Thus, the average monthly interest earned by the company might increase to $5,075. Furthermore, the limited information provided by Daniel could only provide the income, which might be generated after the deployment of credit card. Disney and Gathergood (2013) argued that due to changing policies adopted by banks the overall credit card payment might get delayed and reduce liquidity of the business. Portraying the Total Cost in Dollars of the Collection Cost of Carrying Accounts Receivable: Monthly cost of credit card % Amount on 3 year basis Monthly average amount Average monthly receivables 40,000 credit sales 1,350,000 112,500 Add interest earned 7% 72,500 5,075 Accountant cost 19,000 1,583.33 Credit card sales 4% 54,000 4,500 Invoice collection costs 0.54% 7,290 607.50 Total cost for carrying out account receivables monthly 1.44% 80,290 1,615.83 Table 3: Showing the total cost of carrying accounts receivable (Sources: As created by author) Monthly cost of Collection % Amount on 3 year basis Monthly average amount Average monthly receivables 40,000 credit sales 1,350,000 112,500 Accountant cost 19,000 1,583.33 Collection cost 8,000 666.67 Bad debt 1.25% 16,875 1,406.25 Invoice collection costs 0.54% 7,290 607.50 Total cost for carrying out account receivables monthly 3.79% 51,165 4,263.75 Table 4: Showing the total cost of carrying accounts receivable (Sources: As created by author) With the help of table 3 and 4, the overall different types of costs, which might be incurred by Felicity Flowers Pty Ltd is effectively evaluated. In addition, from the above table it could be concluded that uses of credit card scheme depicted by Daniel might help the company to reduce their costs and increase profitability. Acharya, Almeida and Campello (2013) mentioned that reduction in cost is the mainly priority of companies, which help them to increase retimed profits and cash reserves despite no change in sales figure. Recommending Felicity Flowers Pty Ltd to Introduce Credit Card: With the help of above analysis and tables, the implementation of credit card scheme might mainly help Felicity Flowers to decrease their debt and expenditure over collection cost. Furthermore, the decline in cost might help the company to increase its income from interest earned from excessive cash balance. In addition, current collection cost mainly increases its expenditure by $4,263.75 on a monthly average. However, by implementing the credit card scheme the company might effectively decrease its overall cost of expenditure to around $1615.83. Thus, it could be effectively seen that implementation of credit card scheme might eventually help the company to reduce their expenditure and loan amount provided to clients. In this context, Behr and Sonnekalb (2012) mentioned that reduced credit days to clients mainly hep in maintaining the required liquidity, which might support future prospects of the company. Depicting the Change in Recommendations of Non-Financial Qualitative Factors were Considered: After considering the research conducted by Daniel regarding the implementation of credit cards non-financial qualitative factors does not pose any threat to the recommendations. In addition, the non-financial factors like service quality, brand image and reputation are not in-stake if credit card is implementation. However, the implementation of credit scheme has mainly helped their competitors and might help Felicity Flowers to increase their sales to high number of customers. Das, Das and Mondal (2013) argued that frequent change in policy might mainly reduce productivity of the company, which in turn might decrease its revenue generation capacity. Conclusion: The overall study mainly helps in evaluating the significance of credit card scheme, which might be implemented by Felicity Flowers Pty Ltd in their operations. In addition, the novice effectively shows the calculation, which might be used in identifying the appropriate strategy for Felicity Flowers Pty Ltd. Lastly, the novice effectively depicts the overall cost, which might be incurred by deploying the credit card scheme in Felicity Flowers Pty Ltd. Reference: Acharya, V.V., Almeida, H. and Campello, M., 2013. Aggregate risk and the choice between cash and lines of credit.The Journal of Finance,68(5), pp.2059-2116. Behr, P. and Sonnekalb, S., 2012. The effect of information sharing between lenders on access to credit, cost of credit, and loan performanceEvidence from a credit registry introduction.Journal of Banking Finance,36(11), pp.3017-3032. Das, B.C., Das, B. and Mondal, S.K., 2013. Integrated supply chain model for a deteriorating item with procurement cost dependent credit period.Computers Industrial Engineering,64(3), pp.788-796. Disney, R. and Gathergood, J., 2013. Financial literacy and consumer credit portfolios.Journal of Banking Finance,37(7), pp.2246-2254. Oikonomou, I., Brooks, C. and Pavelin, S., 2014. The effects of corporate social performance on the cost of corporate debt and credit ratings.Financial Review,49(1), pp.49-75. Wheelock, D.C. and Wilson, P.W., 2013. The evolution of cost-productivity and efficiency among US credit unions.Journal of Banking Finance,37(1), pp.75-88.