Transaction Analysis and Statement of Cash Flows Preparation free essay sample

UVA-C-2297 July 28, 2009 DOG CONCIERGES, LLC: TRANSACTION ANALYSIS AND STATEMENT OF CASH FLOWS PREPARATION Part I Although he owned his own business, Jeff Birch was a financial novice. His passion was dogs, and he had finally made the move to start a specialty dog services business in an upscale section of a large mid-Atlantic city. In its first two years, Dog Concierges, LLC, had grown to about $650,000 in sales. Historically, he had left all financial concerns in the hands of his sister, Jennifer Birch, an aspiring CPA. But she had recently graduated from college and was leaving in a month to start her career in Atlanta. Jeff had asked her to give him a crash course in Accounting 101, so he had some handle on the accounting process and the resultant financial statements—well enough, at least, to converse in an informed manner with his sister’s replacement. He had not minded totally leaving the books to her, but he now felt the need to be better informed, since her replacement would not be his â€Å"trusted little sis. We will write a custom essay sample on Transaction Analysis and Statement of Cash Flows Preparation or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page † Jennifer had thought long and hard about how to cram the equivalent of an entire semester of Accounting 101 into a manageable hour-long tutorial that Jeff conceivably could internalize. She had gravitated to an approach reliant on diagrams, with a minimum of traditional technical jargon. She crafted the diagram depicted in Exhibit 1, explaining to Jeff that it had the capacity to illustrate all his financial transactions. The key to keeping his financial records correct and up to date, she said, was to ask three questions for every business event, all the while keeping the equality of the starting equation true: 1. What parts of the diagram were affected? 2. What direction (increase or decrease)? 3. By what dollar amount? After presenting the diagram and its underlying explanation to Jeff, Jennifer decided she needed to give him a bit of homework. She crafted a number of hypothetical business events that she knew were representative of some the business was likely to incur; those events are listed This case was prepared by Mark E. Haskins, Professor of Business Administration. It was written as a basis for discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright  © 2009 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to [emailprotected] com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. ? -2- UVA-C-2297 below. She then instructed Jeff to explain to her, for each of those independent business events, which part of the diagram was affected, in what direction, and by what dollar amount. Jeff felt a bit uncomfortable having to perform for his sister, but he knew it was for his own good. So, he began. Common Business Events 1. Sold capital stock for $15,000 to three investors. 2. Purchased $55,000 of product raw material on account from suppliers. 3. Sold products for $40,000 cash that had cost $29,000 to make. 4. Borrowed $30,000 from the bank, due in 120 days, with an interest rate of 6%. 5. Collected a $4,500 account receivable from a veterinarian customer. 6. Bought a used pickup truck for $8,000 cash. 7. Disbursed cash dividends of $1,500 to owners. . Paid a $2,500 account payable owed to a supplier. 9. Recognized $3,500 annual depreciation on a small warehouse the company owned. 10. Sold an old shed no longer needed that had a recorded cost of $14,000 for $17,500 cash. 11. Accrued 90 days of interest on the bank loan. Part II Jeff’s sister had taught him well. Not only did he accomplish the task she had set up for him, but he also was able to craft a curr ent balance sheet and income statement by using the actual account information Jennifer had recently codified for the current year-end (Exhibits 2 and 3). He now wanted to check his understanding of how to construct a statement of cash flows. He believed that if he understood â€Å"how it was constructed,† his understanding of â€Å"what it depicts† would be cemented. Using a bit of basic algebra, Jennifer had transformed the relationships depicted in Exhibit 1 to reflect the underlying fundamental construction of a statement of cash flows (see Exhibit 4). In essence, the statement was to depict the change in cash by reporting the changes in all the other balance sheet accounts. Jeff figured he could use the Exhibit 4 information to both construct and interpret a statement of cash flows. He considered it imperative that he be able to explain why he crafted the statement of cash flows the way he did, rather than relying on a mechanical execution of the Exhibit 4 aid. So, using the net income and depreciation figures -3- UVA-C-2297 from the income statement in Exhibit 3 and the balance sheet changes he noted in the margin in Exhibit 2, he set out to construct a statement of cash flows for this year for Dog Concierges, LLC. Jennifer did remind him that the â€Å"building† and the â€Å"retained earnings† line items required a bit of special handling. That didn’t faze Jeff in the least. In fact, he felt so confident that he could craft a correct statement of cash flows for this year that he personally bet his sister $100. As he began, he wondered if the bet was a financial event he would have to reflect in the statement. What irony if he lost the bet because he didn’t correctly report the bet in the statement of cash flows! Part III Jeff was feeling pretty confident. He decided to also use the Dog Concierges, LLC, statement of cash flows for the previous year (see Exhibit 5) and the balance sheet as of the end of the previous year (see Exhibit 2), to re-create the balance sheet for the year ended two years earlier. He thought he’d be finished in time to make his 4:00 p. m. tee time. -4Exhibit 1 DOG CONCIERGES, LLC: TRANSACTION ANALYSIS AND STATEMENT OF CASH FLOWS PREPARATION Details of the Basic Accounting Equation UVA-C-2297 Assets (A) Current Assets Cash A/R Inventory Ppd/A Noncurrent Assets Buildings Land Vehicles Investments = Liabilities (L) Current Liabilities A/P W/P I/P T/P Noncurrent Liabilities Bonds payable Long-term loan Short-term loan + Owners’ Equity (OE) Contributed Retained Capital Earnings Net income (Dividends) Revenues (Expenses) Note: A/R = accounts receivable Ppd/A = prepaid assets A/P = accounts payable W/P = wages payable I/P = interest payable T/P = taxes payable Source: Adapted from a similar exhibit presented in Mark Haskins, The Secret Language of Financial Reports (New York: McGraw-Hill, 2008). -5Exhibit 2 DOG CONCIERGES, LLC: TRANSACTION ANALYSIS AND STATEMENT OF CASH FLOWS PREPARATION Balance Sheets as of December 31 (in thousands) This Year $100 100 120 320 320 80 $720 $180 30 210 200 410 120 190 $720 Last Year $110 90 100 300 280 100 $680 $130 40 170 220 390 110 180 $680 Change –10 +10 +20 UVA-C-2297 Cash Accounts receivable Inventory Total current assets Building (net of accumulated depreciation) Other Total assets Accounts payable Taxes payable Total current liabilities Long-term debt Total liabilities Common stock Retained earnings Total liabilities and owners’ equity Source: Created by case writer. +40 –20 +50 –10 –20 +10 +10 -6Exhibit 3 DOG CONCIERGES, LLC: TRANSACTION ANALYSIS AND STATEMENT OF CASH FLOWS PREPARATION Income Statement (for this year ended December 31, in thousands) UVA-C-2297 Sales Cost of goods sold Gross profit Depreciation expense Miscellaneous expense Net income Source: Created by case writer. 650 450 200 (45) (130) $25 -7Exhibit 4 DOG CONCIERGES, LLC: TRANSACTION ANALYSIS AND STATEMENT OF CASH FLOWS PREPARATION Derivation of Statement of Cash Flows UVA-C-2297 Panel A 1. Assets = Liabilities + Owners’ Equity 2. Current Assets + Noncurrent Assets = Current Liabilities + Noncurrent Liabilities + Contributed Capital + Retai ned Earnings 3. Cash + A/R + Inventory + Ppd/A + Vehicles + Buildings + Land + Investments = A/P + W/P + Short-term loans + I/P + Bonds Payable + Long-term loan + Contributed Capital + Net Income – Dividends 4. Cash = Net Income – A/R – Inventory – Ppd/A – Vehicles – Buildings – Land – Investments + A/P + W/P + Short-term loans + I/P + Bonds Payable + Long-term loans + Contributed Capital – Dividends 5. ?Cash = Net Income – ? A/R – ? Inventory – ? Ppd/A – ? Vehicles – ? Buildings – ? Land – ? Investments + ? A/P + ? W/P + ? I/P + ? Short-term loans + ? Bonds Payable + ? Long-term loans + ? Contributed Capital – Dividends Note: The delta (? ) notation signifies â€Å"the change in. † Source: Created by case writer. -8Exhibit 4 (continued) UVA-C-2297 Panel B: Section of the statement of cash flows where the line item is usually presented Net Income – ? A/R – ? Inventory – ? Ppd/A + ? A/P + ? I/P + ? T/P + ? W/P – ? Vehicles – ? Buildings* – ? Land – ? Investments – ? Short-term loans + ? Bonds Payable + ? Long-term loans + ? Contributed Capital – Dividends ? Cash + Beginning Cash = Ending Cash Cash flows from operations Cash flows from investing Cash flows from financing *There are three common ways, assuming it is reported as net of accumulated depreciation (which is the case here), a depreciable asset account such as â€Å"buildings† (or â€Å"vehicles†) is likely to have changed during a year. The monetary amount of each should be reported separately in a statement of cash flows. The three are: (1) purchase payment(s) for acquiring an additional building (to be reported in CFFI); (2) proceeds from sale (to be reported in CFFI); and (3) depreciation expense for the year, which must be added back as a cash expense (to be reported in CFFO). Source: Adapted from a similar exhibit presented in Mark Haskins, The Secret Language of Financial Reports (New York: McGraw-Hill, 2008). 9Exhibit 5 DOG CONCIERGES, LLC: TRANSACTION ANALYSIS AND STATEMENT OF CASH FLOWS PREPARATION Statement of Cash Flows (for last year, in thousands) Net income Depreciation expense Accounts receivable increase Inventory decrease Accounts payable increase Taxes payable increase Cash flow from operations Purchase building Other assets increase Cash flows from investing Payment on long-term debt Purchase of common stock Payment of dividends Cash flows from financing Increase in cash Beginning cash Ending cash Source: Created by case writer. UVA-C-2297 $39 20 (3) 12 21 3 92 (3) (20) (23) (28) (16) (10) (54) 15 95 $110

How to Write an Expository Essay Topic For College

How to Write an Expository Essay Topic For CollegeWhen writing an expository essay topics for college, you should make sure that your subject is well defined. However, you should still keep in mind that the expository essay is not only about defining what you are trying to say in your subject. It is also about creating a strong argument for what you are trying to convey.With that said, here are some tips for expository essay topics for college. The first tip is about providing the reader with a clear idea of your topic, and the second tip is about providing the reader with a clear idea of why you want them to read your essay. These two things will make sure that you are able to be successful at making your essay topics for college the best possible.One of the best ways to present your expository essay topics for college is to give it in chronological order. This gives the reader a chance to read your essay in its entirety, from start to finish. In addition, this helps because it will give the reader a chance to see where your subject is heading in the story. Therefore, if you start to use a chronological approach to write your essay, you will be more successful at developing your thesis.Another way to write an expository essay topics for college is to provide the reader with the problem in your topic. It is important to make sure that you do not try to solve the problem the reader is experiencing or that you do not answer the question in the middle of your essay. Instead, you should provide the reader with a solution to the problem. As the title says, the solution should be in the middle of your essay. If you want your essay to have a better chance of being an expository essay, you should try to give the reader the solution at the very end of your essay.There are also some points that can be included in your expository essay topics for college that will help you become successful at writing an expository essay. For example, one of the points is to tell the read er what is wrong with the solution that you are giving. This will help to create a stronger impact on the reader's mind when they read your essay. This will also help you to more clearly define the problem and provide an appropriate solution.Another general rule to remember is that you should avoid providing any unnecessary information. While you might want to inform the reader of some information that will allow them to have a better understanding of your topic, it is better to avoid doing so. After all, if you are not going to explain why you are stating that information, then there is no point in telling them.So in conclusion, if you want to be successful at writing an expository essay topics for college, these tips should help you make your essay topics for college a success. By following these tips, you will be able to make your essay topics for college the best that you can.