Transaction Analysis and Statement of Cash Flows Preparation
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 “trusted little sis.” 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
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 “trusted little sis.” 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