Effects of Company Changes on it Financial Statement

Identify something you want to change in the company and identify and explain the impact of the change

XX Ltd is a food production company that concentrates on making different types of cereals. The company sells its products to different retail stores in the surrounding, as well as wholesale shops. It also target different food products retail shops in town. The company recently expanded its production unit ready to produce more. It thus needed to change its selling strategies to increase the volumes of sales. Consequently, the company manager organized a meeting with the sales department, where he announced the new plan to extend the credit payment period from 30 days to 45 days. This is intended to attract more customers willing to buy the company products on credit. The company also instructed the sales and marketing group to extend its market to the neighboring towns, so as to expand the company market shares and to attract even more customers.

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The change is likely to attract more customers purchasing. The company will thus make more sales and increase its account receivables. The company’s cash account will reduce compared to cash receivable accounts especially in the first months of time extension. However, it may balance later if all customers will remain committed to their debt payment period. The company may have to struggle with its accounts payables, especially if the payable period is less than the receivable period. This is highly likely to affect the company’s cash flows, as it focuses on paying for its short-term obligation with little obtained from customers willing to pay earlier.

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The company is also likely to experience a rise in number of bad debts. This especially due to expansion of the market where the company is going to deal with new customers, whose loyalty and commitment has not been tested before. This will increase in the company expenses as it tries to use its inflows to handle expenses related to bad debt. The situation will reduce the company net income of the company due to increased expenses and reduce revenue in the income statement. It will also reduce the amount of net receivable in the balance sheet, resulting to a decline in the current assets. Further increase in bad debt is likely to reduce the company’s ability to handle its short-term expenses which are handled by current assets.

Identify a financial report related to your proposed change and explain how your use of this report will influence your decision-making.

The presented proposal is likely to affect the company cash flow. Increase in the days of credit payment will increase the amount in account receivable, while decreasing liquid cash. This may affect the company’s cash related operations in the first two months of its implementation. In addition, the move may increase bad debts, which will generally increase bad debt expenses or liabilities, reducing net receivables eventually reducing net cash flow in a cash flow statement ((Stickeny, Well, Schipper and Francis, 1 p.190). The move will also impact the balance sheet where net receivables are listed as current assets. Reduction of current assets means that the company current ratio used to test the company liquidity will also going down, putting the company into a risk of being unable to handle its expenses.  The unfolding events will also impact the company revenue listed in the income statement, resulting to a decline in net income.

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The report will clearly how the current change is likely to impact the company finances and financial health. The use of the report will assist in directing me on financial challenges the company is likely to face and the financial risk associated with them. With this information, I will be able to assess the risk, and measure how much the company can accommodate in terms of risk. For instance, extending the market with new credit provision will increase the list of defaulters from the new market. Thus, the company will decide to extend credit days to known customers and enter into the new market normally, by encouraging cash sales maybe at a small discount. The credit measure can be extended after the product is accepted in the market, and after winning customer’s loyalty.   

Identify how information or processes not directly related to accounting will be impacted by the proposed change.

The proposal changes will affect operation efficiency of the company. The company efficiency is measured based on the amount of time needed to pay or claim its debts. Thus, change of credit payment will affect company debts payment and hence its level of efficiency in terms of securing raw materials due to delayed payment of suppliers among other things. The change is also likely to affect the company’s sales and marketing process. The company sales and marketing department will have to focus on approaching new customers with new offer to increase sales and also focusing on old customers to encourage them to take advantages of new offers to purchase more. The change is also likely to increase the demand of goods and hence forcing the production department to increase on the amount produced on daily basis. This will also create a need to increase on the supply transportation, and hence need to change the delivery schedules and increase in number of trips for customers purchasing more than before.

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