1. Case Analysis 1
Dog Concierges, LLC:
Transaction Analysis and
Statement of Cash Flows
Preparation
Student Student number
Maria Epifanova 01632800
Lesly JeanLouis 00826331
Junyi Ouyang 01597944
Yifan Cui 01248695
3. 3
Introduction
The report provides information obtained through transaction analysis and statement of
cash flows as well as balance sheet preparation. The paper is based on the case of the
company named Dog Concierges, LLC. The company provides dog services, and within first
two years of its existence, it has succeeded to reach $650,000 in sales. Jeff Birch, the owner
of the company, asked his sister, Jenifer, to assist himwith the basic course in accounting.
Jenifer teaches him the crash course and gives homework exercises that aim to educate Jeff
to recognize various financial transactions as well as to construct financial statements.
This case study is effective to get understanding of accounting fundamentals, financial
transactions’ recognition, financial statements’ preparation and correlation between these
statements. Besides, in order to get a clear picture of business activities, it is important to
analyze the specifics of company’s business model.
The report will comment on transactions based on business activities and explore
perspectives of these financial movements and their effects on company’s performance in
general. These observations do have restrictions since the case did not provide a clear
picture of Dog Concierges’ business model.
4. 4
Case Analysis
The case analysis is divided into three parts as transaction analysis, cash flow statement
preparation as well as balance sheet preparation. Each section answers a certain case
question, thus: the transaction analysis refers to the exercise 1, the cash flow preparation to
the exercise 2, and the balance sheet preparation to the exercise 3 respectively. Each
section presents the data used for analysis as well as the analysis itself.
6. 6
107.000,00 = 107.000,00
Table 1: Transaction Adjustments
Source: Dog Concierges,LLC: Transaction Analysisand Statementof Cash FlowsPreparation,2009
These fictitious business events only reflect the plausible occurrence of similar activities in
Jeff 's company based on the current business model, although they offered him a great
insight into the world of financial accounting. He was able to see and understand firsthand
the impact of each transaction on the Balance Sheet and the Income Statement in terms of
an increase and decrease in the accounts.
A quick look into these events will show a certain expansion in the company. It is expressed
by the sale of capital stock which show the business ' ability to attract new investors to
support its financing needs. Even though, the business has a strong cash position, it seems
that most of these cash inflows were not generated solely by operating activities.
The acquisition of raw material depicts that Dog Concierges, LLC might be in the business of
manufacturing some of its products for resale. The liabilities accounts increase faster than
equity which could be a risk factor in terms of financial leverage for the company.
The ability for the business to borrow money in the short term can only showcase not only
confidence, but also strong business prospects.
Despite Jeff 's confidence of his understanding of financial accounting, it is important to
point out certain flaws in his reporting. Referring to exhibit 3, the classification of
miscellaneous expense and its financial impact in the income statement is quite disturbing.
This account represents more than three quarter of the total expense in the statement and
does not give any indication on what these expenses consist of. It is clear that Jennifer
omission of wages payable and wage expense as an event may induce Jeff in error. Is it
possible that Jeff includes wage expense in the miscellaneous expense? Only the footnotes
could shed light on such mystery.
7. 7
Cash Flow Statement Preparation
Cash Flow Statement
Net Income $25,00
Depreciation expense $45,00
Account Receivales increase $(10,00)
Inventory increase $(20,00)
Accounts Payable increase $50,00
Taxes Payable decrease $(10,00)
Cash flow from operations $80,00
Purchase building $(85,00)
Other assets decrease $20,00
Cash flow from investing $(65,00)
Payment on long-term debt $(20,00)
Purchase ofcommon stock $10,00
Dividends $(15,00)
Cash flow from financing $(25,00)
Increase in cash $(10,00)
Beginning cash $110,00
Ending cash $100,00
Table 2: Cash FlowPreparation
Source: Dog Concierges,LLC: Transaction Analysisand Statementof Cash FlowsPreparation,2009
Cash flow from operations which equals to $80 thousands is a good sign, since his daily
business operations contributed to positive and comparably high cash flow. He is confident
about taking loans because of such a high operating cash flow. Although cash flow from
investing is negative, Jeff is investing into building, so he is expanding his business. It is not
possible to elaborate on other assets since the further information related to this category
is not provided.
Cash flow from financing is also negative, but it shows good activities since the company
paid out dividends and it decreased it long-debt debt by $20 thousands, which is a positive
side. Besides, investors bought common stock of a company, which means that creditors are
confident about the company.
8. 8
Balance Sheet Preparation
Balance Sheet
Assets Liabilities and equity
Cash assets $95,00 Accounts Payable $109,00
Tax Payable
$ 37,00Non-cash assets
Accounts Receivable $87,00 Long-term debt $248,00
Inventory $112,00 Total liabilities $394,00
Building $297,00
Other $80,00 Contributed Capital $126,00
Retained Earnings $151,00
Total equity $277,00
Total Assets
$671,00
Total Liabilities and
Equity $671,00
Table 3: BalanceSheetPreparation
Source: Dog Concierges,LLC: Transaction Analysisand Statementof Cash FlowsPreparation,2009
Based on the information provided (also refer to Appendix), it is considered that the
business is going on the right direction since there is an increase in cash, along with the
increase in A/R and at the same time increase in A/P, which explains that the business is
buying a lot more inventories and having a lot more sales on account when looking at A/R.
The company assumes that the stock is undervalued, and therefore, it has repurchased the
stock, which is going to make the company more attractive to potential investors and
indicated that the company has enough cash to refinance the buyback. The attractiveness of
shares at the same time might increase because of payment of dividends by the company.
9. 9
Conclusion
Based on the fact presented by the case study, it is important to point out the relevance of
the events given to Jeff in order to understand the business environment, the accounts
involved, and interaction between the financial statements.
Although the information that was given to Jeff is missing some important and critical
aspects of his regular business activities such as recognizing Wages, Administrative and
Marketing Expenses. These transactions are essential owning the fact that they reflect the
delicate adjustments of accrual accounting. In addition, Jeff should realize that the $100 bet
should not be recorded as a business transaction because it is not related to daily business
and due to the fact that Dog Concierges, LLC is not a sole proprietorship.
It is important to mention that the statements that Jeff has prepared do show his
understanding of basic accounting as his sister intended.
In addition, based on the past two years’ activities, Dog Concierges seems to improve
tremendously and is considered to be in a comparably secure financial position.
Nevertheless, the management has to pay careful attention when recognizing miscellaneous
expense as in order to get understanding what the character of these expenses are and how
they affect the financial performance of the company.
10. 10
Appendix
Preparation of Balance Sheet using the cash flow statement from the past two years.
Balance Sheet 2 yeas earlier
Change BS 1 year earl BS 2 years earl
Net Income $39,00
Depreciation expense $20,00
Cash $(15,00) 110 $95,00
A/R increase $(3,00) $90,00 $87,00
Inventory decrease $12,00 $100,00 $112,00
A/P increase $21,00 $130,00 $109,00
T/P increase $3,00 $40,00 $37,00
Purchase building $(3,00) $280,00 $297,00
Other assets increase $(20,00) $100,00 $80,00
Payment on l-t debt $(28,00) $220,00 $248,00
Purchase of common stock $(16,00) $110,00 $126,00
Payment of dividends $(10,00) $- $10,00
Source: Dog Concierges,LLC: Transaction Analysisand Statementof Cash FlowsPreparation,2009
