Product Overview

This case works well following an introductory class on transaction analysis and preparation of basic financial statements. A learning team of Darden MBA students meets to discuss the case assigned for the following day's accounting class. Two members who are CPAs realize that the team will lack basic understanding of the material unless they intervene. The case-within-a-case structure serves to highlight common misconceptions among students new to the material on one level and, simultaneously, common accounting oversights among entrepreneurs on the other.

Learning Objectives

• Solidifying the understanding that the equation [Assets (A) = Liabilities (L) + Owners’ Equity (OE)] always holds • Understanding and applying matching concept and accrual accounting principles • Recording journal entries to reflect the transactions • Inferring journal entries from the income statement and the beginning and ending balances on the balance sheet • Recognizing the differences between balance sheet and income statement items and the role of each in a financial statement • Understanding the reversal of accrued and prepaid expenses in the following year • Understanding the relationship between sales, cash, and accounts receivable • Understanding the relationship between cost of goods sold (purchases), inventories, and accounts payable • Calculating and recording the gain or loss on disposal of property, plant, and equipment • Recording an inventory write-off • Understanding the “lower of cost or market value” principle • Preparing a balance sheet, income statement, and statement of cash flows using the indirect method and recognize how the three statements relate to one another