Summary of Assessment Method: An Individual Report analysing the financial statements of a food and beverage operation and their implication on the sustainability of the business (1,500 words including figures and tables).
On successful completion of the module, students will be able to:
- Critically analyse the fundamental accounting principles and the applications of the accounting principles in the context of F&B.
- Analyze and interpret the key elements included in the financial statements in the food and beverage industry.
- Justify and assess the importance/application of sustainability in today’s business from perspective of accounting.
“Starting from Scratch”
-Fish & Chips Food Truck Project
Descriptions in general
On your graduation ceremony, you were not satisfied with the food which was Fish and Chips offered by a local restaurant. “The chips were not crispy, and even the fishes were cold!” you said to one of your colleagues who totally agreed with you. Consequently, you and your friend decided to open a Fish & Chips Food Truck from “scratch”. Since you took the course of Financial Accounting at César Ritz Colleges (Brig), your friend thus kindly asked to you to be the CEO, and to manage the company.
Assume that your food truck started operating on 01-01-202X, and by the end of the month (31-01- 202X), you decided to use the knowledge you learnt from the course of Financial Accounting to record and report all the business-related transactions with the ultimate objective of preparing the FOUR financial statements.
Stage 1 – Recording
In this stage, you are required:
- Complete the story by introducing your Fish & Chips Food Truck project. You may want to include the name of the food truck, brief introduction of the owner(s), location of the food truck, business objective (mission and vision statements), financing strategy (issuing shares and borrowings), and so forth.
- Formulate possible business transactions (by describing or stating the business transactions) of the food truck business for the month (January, 202X). No. of business transaction statements are: 18 – 20.
- Use Journal Entry to RECORD each of the business transactions you formulated.
- You can rely on the following list of accounting items to prepare your business transactions and
journal entries.
o Cash and cash equivalents (recording cash received and cash paid);
o Account receivable (recording the amount customers owe your company);
o Inventory (recording purchases of the inventories);
o Supplies (recording purchases of the supplies);
o Pre-paidinsurance(recordingpurchasesofinsurance);
o Cooking equipment (recording purchases of equipment as long-term fixed asset); o Food truck (recording purchases of truck as long-term fixed asset)
o Account payable (recording firm’s obligations to pay in the future – suppliers);
Short-term Note payable (recording firm’s obligations to pay in the future –sellers of the fixed assets);
o Salaries/wages payable (recording firm’s obligations to pay salaries/wages in the future); o Interest payable (recording firm’s obligations to pay interest in the future);
o Income taxes payable (recording firm’s obligations to pay income taxes in the future);
o Long-term note payable (recording firm’s obligations to pay in the future –sellers of the
fixed assets – banks);
o Dividend payable (recording firm’s obligations to pay dividends to shareholders);
o Common shares (recording share issuing);
o Additional paid-in capital (recording extra cash received from share issuing);
o Retained earnings (recording net income/loss, dividend payments);
o Sales revenue (to simplify computations, you can make assumptions on the selling price
per meal, and quantity of the meals sold during the month);
o Cost of goods sold (require assumptions and calculations on cost of goods sold) o Salaries/wages expense (require adjusting journal entry)
o Insuranceexpense(requireadjustingjournalentry)
o Depreciation expense (require adjusting journal entry)
o Interest expense (require adjusting journal entry)
o Income taxes expense (require adjusting journal entry)
o Andetc.
Stage 2 – Summarising
In this stage, you are required:
- Based on the Journal Entries you made, prepare the T-accounts to summarise them.
- Based on the T-accounts you prepared, make the unadjusted Trial balance.
Stage 3 – Making the Adjustments In this stage, you are required: - Prepare Adjusting Journal Entries to the account items you formulated;
- You can rely on the following list to prepare your Adjusting Journal Entries.
o Sales revenue (finalising)
o Cost of goods sold (finalising)
o Salaries/wagesexpense(adjusting) o Insuranceexpense(adjusting)
o Depreciationexpense(adjusting) o Interestexpense(adjusting)
• Combined with the adjusting journal entries, updating relevant T-accounts, and preparing Trial balance.
Prepare the closing procedures. Stage 4 – Preparing the financial reports In this stage, you are required:
• Based on the calculations/results obtained in the previous 3 stages, prepare the financial statements for your company for the month of January, including Balance Sheet, Income Statement, Statement of Shareholders’ Equity, and Statement of Cash flows.
Prepare a cover page containing the name and student number. Prepare an executive summary of the project. The grade for this section will be awarded on the basis of completeness of the information and a well-structured executive summary. (5%)
Provide an overview of the company by including the information related (but not limited to) name of the Fish and Chips Food Truck, location of the business, logo, principal business activities, and so forth. The grade for this section will be given on the completeness and sounding presentation of the section. (10%)
Record the business transactions. Start with formulating possible and related business transactions (by describing or stating the business transactions) of the food truck business for the month (January, 202X). No. of business transaction statements are: 18 – 20. Then, use journal entries to record the business transactions formulated. The grade of this section will emphasise on the comprehensiveness of the business transactions formulated and correctness of the relevant journal entries. (25%)
Summarise the journal entries through T-accounts. Based on the journal entries made, prepare the T-accounts to summarise them. And then, make the unadjusted trial balance for each accounting item. The grade of this section will be awarded based on the correctness of both T-accounts and unadjusted trial balance. (15%)
Make accounting adjustments by the end of the Month (January, 202X). Prepare adjusting journal entries to the account items formulated earlier. And then, update the relevant T-accounts, preparing adjusted trial balance. The grade of this section will be awarded on adjusting journal entries and adjusted trial balance. (15%)
Based on the calculations/results obtained in the previous sections, prepare the financial statements for the month of January, including Balance Sheet, Income Statement, Statement of Shareholders’ Equity, and Statement of Cash flows. The grade will be emphasised on the comprehensiveness of the financial statements. (25%)
Prepare a concluding section, and what is your reflection on this project? – Grading will depend on substance and good presentation of the reflection. (5%)
Introduction:
Effective record keeping is crucial for various reasons, including financial management, legal compliance, and strategic decision-making (Jones, 2015; Wood, 2018). It serves as a historical account of a company's transactions, enabling accurate financial reporting and analysis (Nobles et al., 2017). Without comprehensive records, businesses may face challenges in tracking expenses, revenues, and profitability, hindering their ability to make informed financial decisions.
Moreover, record keeping is vital for legal and regulatory compliance. Accurate documentation supports audits and ensures that businesses adhere to tax laws, industry regulations, and reporting standards (Holtzman, 2016). Failure to maintain proper records can result in legal consequences and financial penalties (Smith, 2019).
The strategic importance of record keeping is evident in its role in decision-making processes. Business leaders rely on historical data to identify trends, assess performance, and formulate strategies for growth and sustainability (Brigham & Ehrhardt, 2017). Timely and accurate information derived from records enhances the organization's ability to adapt to market changes and make informed decisions (McGowan & Klammer, 2018).
Crunchy Catch, a fictional seafood restaurant, exemplifies the significance of robust record-keeping practices. The restaurant maintains meticulous records of daily sales, inventory levels, and customer preferences. This commitment to record keeping allows Crunchy Catch to:
Monitor Financial Performance: Regular analysis of financial records helps Crunchy Catch assess its profitability, identify cost-saving opportunities, and allocate resources effectively.
Ensure Compliance: By keeping accurate records of transactions, Crunchy Catch ensures compliance with tax regulations, health and safety standards, and food safety requirements.
Enhance Customer Experience: The restaurant's record-keeping practices enable it to track customer preferences, allowing for personalized services, targeted marketing, and improved customer satisfaction.
Facilitate Strategic Planning: Historical data empowers Crunchy Catch to make strategic decisions, such as menu adjustments, expansion plans, and pricing strategies, based on a thorough understanding of past performance.
Crunchy Catch Food Truck embarked on a dynamic journey in January 2024, navigating through a series of daily business transactions that unfolded a tapestry of financial activities. From securing capital through common shares to managing short-term and long-term liabilities, the month was marked by strategic decisions, operational expansions, and financial adjustments. This report delves into the daily transactions, adjusting entries, financial statements, and the overall financial health of Crunchy Catch Food Truck for the month.
BUSINESS TRANSACTIONS
January 1 2023:
Journal Entry 1:
In January 2024, Crunchy Catch Food Truck embarked on its journey with enthusiasm.
January 2 2023 :
Journal Entry 13:
Accruing $1,000 in accounts payable for supplies emphasized the company's commitment to transparent financial reporting. This accrual ensured that all liabilities were accurately reflected in the financial statements.
January 3 2023 :
Journal Entry 14:
To finance the purchase of cooking equipment, the food truck borrowed $10,000 on a short-term note. This strategic move provided the necessary capital for growth and expansion.
January 4 2023:
Journal Entry 15:
Acknowledging the hard work of its employees, Crunchy Catch accrued $3,000 in salaries/wages payable for the employee payroll. This commitment reflected the company's dedication to its workforce.
January 5 2023:
Journal Entry 16:
Anticipating future financial obligations, the business accrued $500 in interest payable for the short-term note. This proactive measure ensured that all financial responsibilities were diligently recorded.
January 6:
Journal Entry 17:
For the acquisition of the food truck, Crunchy Catch borrowed $20,000 on a long-term note. This long-term financing option provided the necessary funds for a key asset in the food truck business.
January 7:
Journal Entry 5:
The food truck began making sales, receiving $12,000 in cash from customers for the meals sold. This not only reflected the popularity of Crunchy Catch's offerings but also contributed to the company's growing revenue.
Journal Entry 19:
Based on assumed sales of 2,000 meals at $6 per meal, Crunchy Catch recognized $12,000 in sales revenue. This entry reflected the company's optimism about its market presence and revenue generation.
January 8:
Journal Entry 20:
To accurately calculate profitability, the food truck calculated the cost of goods sold based on assumptions and actual purchases. This entry allowed Crunchy Catch to assess its gross profit and overall financial performance.
January 9:
Journal Entry 21:
Adjusting salaries/wages expense based on accrual accounting, the company recognized $3,000 in expenses. This accounting practice ensured that all costs associated with employee compensation were accurately reported.
January 10:
Journal Entry 22:
In line with accounting principles, Crunchy Catch accounted for the depreciation of cooking equipment and the food truck. This entry recognized the wear and tear of assets over time, aligning with sound accounting practices.
January 11:
Journal Entry 23:
Acknowledging its financial commitments, the company recognized interest expense for both short-term and long-term notes. This entry reflected Crunchy Catch's responsibility in meeting its financial obligations.
January 12:
Journal Entry 24:
Taking into account assumed earnings, Crunchy Catch calculated income taxes expense. This entry underscored the company's commitment to meeting its tax obligations as a responsible business entity.
January 13:
Adjusting Journal Entries:
Adjusted sales revenue, cost of goods sold, salaries/wages expense, insurance expense, and interest expense based on provided adjustments.
January 14:
Closing Procedures:
Closed revenue accounts, debiting sales revenue and crediting retained earnings.
January 15:
Closing Procedures:
Closed expense accounts, debiting retained earnings.
January 16:
Updating T-accounts:
Updated T-accounts for sales revenue, cost of goods sold, salaries/wages expense, insurance expense, and depreciation expense.
January 17:
Financial Statements:
Generated income statement, statement of shareholders' equity, and balance sheet based on adjusted trial balance.
OTHER ENTRIES
Journal Entry 2:
To establish a physical presence, the food truck paid $2,000 in cash for a month's rent. This marked the beginning of the truck's operations as it sought a prime location to serve its delicious meals.
Journal Entry 3:
Investing in the necessary equipment, Crunchy Catch acquired cooking equipment for $15,000 in cash. This ensured the food truck was well-equipped to deliver high-quality meals to its customers.
Journal Entry 4:
Adding mobility to its culinary venture, the business purchased a food truck for $25,000 in cash. This strategic acquisition enabled Crunchy Catch to reach a wider audience and explore various locations for its offerings.
Journal Entry 6:
To maintain a sufficient inventory of ingredients, $5,000 in cash was disbursed for the purchase of inventory. This ensured the food truck could continue meeting the demands of its eager customers.
Journal Entry 7:
Recognizing the importance of a well-stocked kitchen, the company spent $1,000 in cash to acquire supplies. This investment in supplies was crucial for the smooth operation of Crunchy Catch.
Journal Entry 8:
Embracing a customer-friendly approach, Crunchy Catch sold meals on credit, amounting to $3,000. This not only expanded the customer base but also introduced a credit component to the company's receivables.
Journal Entry 9:
Securing additional inventory, Crunchy Catch made a credit purchase of $5,000. This allowed the food truck to manage its resources effectively while meeting the demand for its delectable meals.
Journal Entry 10:
In anticipation of future needs, the business purchased supplies on credit, investing $1,000. This decision ensured that Crunchy Catch had the necessary resources to operate smoothly.
Journal Entry 11:
Prioritizing risk management, the company paid $500 in advance for insurance coverage. This forward-looking step aimed to protect Crunchy Catch against unforeseen challenges in its operations.
Journal Entry 18:
Reserving retained earnings for future financial activities demonstrated the company's commitment to prudent financial management. This entry marked a step toward building a solid foundation for future growth.
From the above transactions, below figures shows T-accounts for the transactions;
|
Cruntchy catch |
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|
Common Shares |
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|
Date |
Description |
Debit ($) |
Credit ($) |
|
Jan 1 |
Issued common shares |
$50,000 |
|
Cruntchy catch |
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|
Accounts Payable |
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|
Date |
Description |
Debit ($) |
Credit ($) |
|
Jan 2 |
Incurred $5,000 for inventory |
$5,000 |
|
|
Jan 2 |
Accrued $1,000 for supplies |
$1,000 |
|
Cruntchy catch |
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|
Short-term Note Payable: |
|||||
|
Date |
Description |
Debit ($) |
Credit ($) |
||
|
Jan 3 |
Borrowed $10,000 on note |
$10,000 |
|
Cruntchy catch |
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|
Salaries/Wages Payable: |
||||||
|
Date |
Description |
Debit ($) |
Credit ($) |
|||
|
Jan 4 |
Accrued $3,000 in salaries/wages |
$3,000 |
|
Cruntchy catch |
||||||
|
Interest Payable |
||||||
|
Date |
Description |
Debit ($) |
Credit ($) |
|||
|
Jan 5 |
Accrued $500 in interest |
$500 |
|
Cruntchy catch |
|||||
|
Long-term Note Payable |
|||||
|
Date |
Description |
Debit ($) |
Credit ($) |
||
|
Jan 6 |
Borrowed $20,000 on note |
$20,000 |
|
Cruntchy catch |
|||||
|
Sales Revenue |
|||||
|
Date |
Description |
Debit ($) |
Credit ($) |
||
|
Jan 7 |
Assumed sales of $12,000 |
$12,000 |
|
Cruntchy catch |
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|
Cost of goods sold |
|||||
|
Date |
Description |
Debit ($) |
Credit ($) |
||
|
Jan 19 |
Calculated cost of goods sold |
$5,000 |
From the business transactions, the below unadjusted trial balance has been prepared;
|
Account |
Debit ($) |
Credit ($) |
|
Cash and Cash Equivalents |
$29,000 |
|
|
Accounts Receivable |
$3,000 |
|
|
Inventory |
$5,000 |
|
|
Supplies |
$1,000 |
|
|
Prepaid Insurance |
$500 |
|
|
Accounts Payable |
$6,000 |
|
|
Short-term Note Payable |
$10,000 |
|
|
Salaries/Wages Payable |
$3,000 |
|
|
Interest Payable |
$500 |
|
|
Long-term Note Payable |
$20,000 |
|
|
Common Shares |
$50,000 |
|
|
Additional Paid-in Capital |
$10,000 |
|
|
Retained Earnings |
$2,500 |
|
|
Sales Revenue |
$12,000 |
|
|
Cost of Goods Sold |
$5,000 |
|
|
Salaries/Wages Expense |
$3,000 |
|
|
Insurance Expense |
$500 |
|