ACCOUNTING MEMO

Accounting Memo

Accounting Memo

Written communication between employees in a company often comes in the form of a memorandum, or memo. Although e-mail is now the most prominent form of internal communication, memos will always exist for two reasons:

Some employees do not have access to e-mail or the Internet in their job positions, and thus need paper forms of communication

Original hard copies on letterhead with initials or signatures are often needed for legal purposes or working files

In almost every work environment, people write memos. Memo writing conventions vary from company to company, but memos generally follow the guidelines based in this handout. When writing a memo, you must carefully consider your format, audience, purpose, organization and style.

Format

Because memos are a type of internal communication, inside addresses, salutations and closings are not necessary. Memos have just two sections: the heading and the body.

To:Connie Rocha

From:Carlos A. Villanueva

Date:July 24, 2010

Subject:Aunt Connie's Cookies Cost Accounting

Precise financial statements are essential for informed decision making. A clear understanding of how to record business transactions is the key for accuracy in the books of accounts. Aunt Connie's Cookies, a company founded by Connie Rocha started marketing their product with an initial investment of $80,000. Upon analyzing transaction flow, several transactions have been identified to understand their elements and highlight important information for management's decision making. Every transaction reveals the impact on financial statements as noted in the following transactions:

The business receives an initial deposit in a checking account in the name of Aunt Connie's Cookies. This transaction is in effect a transfer of liquid from the owner to the business known as owners' equity or the ownership right of assets after deducting the liabilities. Investing in a firm's equity would yield the investor financial interest in proportion to the investment in the firm's property after deducting the liabilities. Assets represent the amount of resources owned by the business entity. The cash invested by Connie would be a resource for Aunt Connie's Cookies, while the financial interest held by Connie in the business would be her capital.

In November, Aunt Connie's Cookies paid rent in advance for two months. According to the accrual concept, if an expense is incurred during a period, it has to be treated as an expense during that period, regardless is paid or unpaid. Assets represent the amount of resources owned by the entity. Since the rent for the next two months has not been incurred by Aunt Connie's Cookies, it would be recorded as an asset until the point where the rent expense would be incurred. The cash outflow would be recorded as a decrease to cash, while the rent paid would be recorded as an asset to the firm.

After initial operations Aunt Connie's cookies sold $21,000 in products receiving this payment in full. This transaction reflected an increase in cash and revenue. The financial statements affected by this transaction are:

oIncome Statement with a recording of $21,000 in sales, $10,000 in expenses and a net income of ...