Private Fitness Llc Essay

1062 Words May 7th, 2010 5 Pages
Case 15-1: Private Fitness LLC*
Private Fitness LLC is a springboard case that can be used as the basis of a discussion of management's need for information. It serves the same purpose for Part 2 of the book that the Kim Fuller case did for Part 1.
Approach
This case uses a small business as its setting so that students can visualize the business's activities, and so questions of generally accepted accounting principles will be essentially irrelevant. In fact, a shift the student needs to make as he/she begins Part 2 of the book is to think of accounting primarily in terms of its usefulness to a company's management, rather than in terms of reporting to shareholders and other outside parties. Because of the differing focus of Part 1 of
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3. Should Rosemary pay herself a salary and commission for the classes she ran, or should she take merely the residual profits (or cash flow) from the business?

4. Should the equipment (e.g., exercise bicycles) be “expensed” when acquired, or should the equipment costs be spread over some period of time to provide a more meaningful time-series picture of costs? If the latter, what equipment life should be used, and should the cost of equipment be spread equally to time periods over that useful life?

Addressing the Specific Problems

Students must first recognize that there are two problems to be solved—the theft of cash and the unrecorded revenue. There are a lot of internal control options, most of which involve options that go far beyond the accounting. I like to divide the options into three categories, (1) action controls—those that limit the manager’s ability to perform the specific bad actions, (2) results controls—those that improve the pay-for-performance system, and (3) personnel/cultural controls—those that encourage either more employee honesty (self-control) or encourage employees to monitor each others’ behaviors (social control).

1. Action controls—e.g., hire a supervisor (accomplish “separation of duties”), camera with videotaping capability, locked cash box, use of receipts and reconciliations with cash in the drawer/cash register.

2. Results controls—Students must

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