Accounting in Small Business Decisions by James L. Gibson, W. Warren Haynes

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By James L. Gibson, W. Warren Haynes

Accounting in Small enterprise Decisions provides the 1st large-scale empirical exam of the way small companies use accounting facts to make working judgements.

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Decisions on the quantity of land to be devoted to a particular plant must recognize price-volume relationships. If it requires lower prices to sell greater quantities of a plant material, it becomes necessary to consider the marginal revenues rather than the average or total revenues. The price-volume relationship or elasticity of demand in turn depends upon the market structure in which the nursery operates. One great advantage of the present value method is that it provides a ready comparison of plants of varying growing periods.

The owner and one other salesman are the only personnel. The accounting system is very crude, and reports are prepared once a year for tax purposes. Ratios and averages are not prepared because the owner sees no need for them nor does he understand their meaning. He receives publications of industry data, but does not use the information. In this case the concept of homeostasis may seem inapplicable because data are not developed to reveal changing relationships in the financial statements. However, the owner gauges his success by his ability to maintain an adequate living.

The objective is maximization of profits to be derived from those facilities, which means the selection of the optimum combination of alternatives. ) The present value method discounts the expected profits in such a way that earnings in different time periods can be compared. The fixed facilities, including the land, are the scarce resources that must be rationed according to this model. The present values enable management to rank alternatives to optimize the use of these resources. This is not necessarily the only way to look at the problem.

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