Accounting and control; Financial statements; Entrepreneurship; Small business accounting

This is the first of a two-case series (106-056-1 and 106-057-1). Most business start-ups often commence operations without establishing clearly defined accounting and control systems / structures. It has been found that small business owners in particular have a limited understanding of the importance of maintaining proper accounting records and controls. This case gives an insight into the development of the financial records and accounting system of a typical small business, from inception. The company, Ideal Fittings Ltd (IFL), has been in operation for fifteen months. The business owners want to confirm that the accounting records they have been keeping and the reporting system of the company are adequate and capture all the business transactions, thereby providing accurate financial information. The key learning points the case illustrates are: (1) the outcome of keeping incomplete records; (2) the identification and recording of the business transactions of the company (as a separate entity from the owner); and (3) the reconstruction of complete financial statements from incomplete records. By illustrating that for the same company, different accountants can produce a financial statement showing differing figures, the case highlights the usefulness of having a basic understanding of all the issues involved in the recording of business transactions. Also, the case presents the opportunity to discuss the need for internal controls in a small business by identifying the risks that IFL is taking. The case is intended for entrepreneurs / small and medium-sized business owners and accounting officers as part of the finance and entrepreneurship courses. This case is also suitable for use in faculty development workshops catering to entrepreneurs. The case is supported by a detailed teaching note which includes: (1) the basic issues and highlights; (2) teaching objectives and suggested teaching approach; (3) assignment questions for discussion; (4) analysis of the assignment questions; and (5) suggested board plan