Bates Boatyard Case Solution
Business Activities
Business activities are defined as activities which are
conducted or have the primary purpose to generate
profit. This is a general term to include all economic
activities carried by a company. Mainly there are three
types of economic activities; operating activities,
investing activities and financing
activities. (Investopedia)
In boatyard business, operating activities and
financing activities are managed.
Operating Activities
Operating activities are the core day to day activities
which are conducted mainly to generate revenue.
Most of the time companies generate revenue
through two main activities of selling products and
services. (Basu)
Sarah Bates intends to generate revenue through
rendering boats in the town of Coast of Maine in the
summer season as demand for boats are high in this
season. While in the winter season she intends to
provide storage facilities to the boat owners as in this
season, people need suitable buildings for storage
purpose. Along with this, she also intends to conduct
repair and painting works over boats in the spring
season as the business of repairs and paint is good in
this season. Along with this, she also intends to
construct small boats in her new business.
Bates also intends to introduce accounting system to
record her business activities. Although this activity
will not directly generate any profit but indirectly we
can say that due to this activity, Bates can manage
her business effectively and can improve the core
activities therefore, it may also be considered as
operating activities.
Financing Activities
Financing activities mainly include activities relating to
sources which are used to finance the company.
Mainly companies use initial public offering (IPO) and
debt to finance their business. These activities also
include all kinds of dividend and interest paid to the
finance providers.
Bates intended to use her savings to incorporate
boatyard business but when she critically analyzed
the proposed business, she realized that the
proposed business needed more finance than the
savings. Therefore, she borrowed additional finance
from her friend over the property which indicates that
Bates use debt to finance her business.  Balance Sheet: By analyzing this document we can
Required Accounting Information to asses
Business Activities
Ms. Bates conduct too many business activities to run
her organization. To analyze the effectiveness of
these activities and to determine the nature of the
organization that either it is cost center or profit center
we need the following accounting information.
The core business activity is profit generation.
Organization mainly renders boat services to
generate profit along with this, it also provides
different services in different seasons to generate
profit. To analyze the effectiveness of these activities,
we need the information about the profitability ratios
of the company and relative industry. By obtaining this
information, we can conclude that how well company
manages its expenses and earns the profit.
Furthermore, by obtaining seasonal income statement
we can determine the revenue generated by the
product and services in that particular season.
The other main activity which is conducted by the
Boatyard is the implementation of accounting system.
The predetermined objective of this activity is to know
about the cost so that organization can offer a
reasonable price for its product and services. We can
assess the effectiveness of this activity by obtaining
management and audit committee report about the
effectiveness of the controls. Furthermore, we can
also assess its effectiveness by reviewing the
information gathered by the implemented accounting
system.
The last main activity which is conducted by the
Boatyard is obtaining of finance. Organization
obtained finance through debt sources therefore, to
determine how much organization’s capital structure
consists of debt source we required information about
gearing ratios of the organization. Furthermore, we
can also obtain the information about the accounts of
individual investors to determine their amount.
Determination of Profit Center
Profit centers are described as the division of the
company which are responsible for its own profits.
These centers manage all activities relating to sales,
earnings and cost. The managers of these centers
generally have the decision-making authority relating
to pricing and operating expenses so that they can
conduct the operations effectively.(Kennon, 2016)
To determine the nature of Bates Boatyard that either
it is a profit center or not we need the following
accounting information:
Income Statement: By obtaining this, we can
understand the authority of the division relating to the
expenses. Because in this document all revenues and
expenses relating to the division are recorded
therefore, it will be beneficial for determining the
nature of the organization.
further evaluate the nature of the organization
because in this document all of the assets, liabilities
and equity are recorded. And as we explained that
profit centers manage their own assets and liabilities
therefore, this will be helpful in determining the nature
of the organization……………