MolokaiGas, Inc.
Case number:
A01-00-0016
Abstract
The purpose of this case is to illustrate the derivation of financial statements under accrual accounting without using ledger accounts or T accounts or using the terms, debits and credits. The case is written for executive education programs to illustrate financial statements to non-financial managers. The case takes a balance sheet perspective by asking students to interpret how each of the accounting events described in the case affect the beginning balance sheet. The case is centered around a fictitious entrepreneurial company established to purchase and distribute propane gas on the island of Molokai.
Teaching
The instructor can introduce the case by asking what factors will be important to the success of the propane distribution business. Students will generally mention marketing skills - to find new customers and retain existing customer, develop additional products and services such as risk management services and equipment financing, and distribution and logistic skills to route customers deliveries in the most efficient manner possible.
After the introduction, the instructor can set up the worksheet on an overhead slide to enter the transactions as students respond to questions about how the transaction should be recorded. Transaction # 1 involves revenue recognition. Students can be asked to consider whether the company should recognize all $1,360 of credit sales as revenue or only the $700 collected in cash. This involves a consideration of whether the revenue has been earned and whether estimates of the uncolletible receivables can be reasonably made. If only the latter amount is recognized as revenue, students should be asked to consider what to do with the $660 difference - the balance of the receivables. Clearly, it would have to be considered unearned revenue (a current liability) and a column in the liability section would have to be created. This amount would be recognized as revenue when it was later collected in cash.
The remaining transactions can be examined in a similar manner. A more detailed interpretation of some transactions can be left for discussion until after the financial statements have been developed.
After the introduction, the instructor can set up the worksheet on an overhead slide to enter the transactions as students respond to questions about how the transaction should be recorded. Transaction # 1 involves revenue recognition. Students can be asked to consider whether the company should recognize all $1,360 of credit sales as revenue or only the $700 collected in cash. This involves a consideration of whether the revenue has been earned and whether estimates of the uncolletible receivables can be reasonably made. If only the latter amount is recognized as revenue, students should be asked to consider what to do with the $660 difference - the balance of the receivables. Clearly, it would have to be considered unearned revenue (a current liability) and a column in the liability section would have to be created. This amount would be recognized as revenue when it was later collected in cash.
The remaining transactions can be examined in a similar manner. A more detailed interpretation of some transactions can be left for discussion until after the financial statements have been developed.
Case number:
A01-00-0016
Subject:
Accounting and Control
Year:
Setting:
Hawaii
Length:
4 pages
Source:
Library