Accounting Cycle Case Names And Journal Entries

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Prepare the fiscal year 2013 financial statements for Noodles & Company based on the provided data, including creating journal entries, posting to T-accounts, preparing trial balances, and financial statements such as income statement, statement of retained earnings, and balance sheet, as well as closing entries for the accounts.

Paper For Above instruction

The financial management and accounting processes for Noodles & Company during the fiscal year 2013 involve a comprehensive set of activities including journal entries, posting to T-accounts, preparing trial balances, and generating financial statements. This paper elaborates on these processes, illustrating the accounting cycle and demonstrating how a fictitious company's 2013 fiscal data can be structured into formal financial documents, ensuring adherence to accounting standards and accurate reflection of the company's financial position.

Initially, it is essential to begin with understanding Noodles & Company's financial position at the start of 2013, based on the prior year-end balance sheet data. The balances of permanent accounts—such as cash, accounts receivable, inventory, property & equipment, and liabilities—are recorded as beginning balances in the T-accounts. Temporary accounts, including revenues and expenses, are initialized at zero during the start of the period to reflect activities for the current fiscal year. This differentiation aligns with the fundamental accounting principle of separating perpetual balance sheet accounts from period-based income statement accounts.

The execution of journal entries marks the core of recording all financial activities conducted by Noodles during 2013. Key transactions include issuance of new common stock, procurement of inventory, sales at company-operated restaurants, revenues from franchising operations, repayment of long-term debt, acquisition of fixed assets, collection of receivables, payment for operating expenses—including wages, advertising, pre-opening costs, and taxes—and treasury stock transactions. Each event requires precise debit and credit entries to accurately reflect the company's financial activities and maintain the integrity of the accounting equation.

For instance, when Noodles issues new shares of stock in exchange for cash, the journal entry debits Cash and credits Common Stock, increasing assets and owners' equity accordingly. Purchase of inventory is recorded by debiting Inventory and crediting Accounts Payable, illustrating the company's obligation to suppliers. Sales transactions involve debiting Cash and crediting Restaurant Revenue, while the cost of goods sold is recognized by debiting Cost of Sales and crediting Inventory, aligning with revenue recognition principles. Franchise royalties and fees are credited accordingly, reflecting income earned from franchise operations.

As the year progresses, transactions such as paying down long-term debt, acquiring property and equipment, paying suppliers, and making payments for expenses are processed through respective journal entries. These entries are then posted to the respective T-accounts, which aggregate the debits and credits over the year and facilitate the preparation of a trial balance. For example, the payment of interest expense is recorded by debiting Interest Expense and crediting Cash, reflecting cost incurred and cash outflow. Similarly, treasury stock transactions involve debiting Treasury Stock and crediting Cash, reducing equity as the company reacquires its shares.

Depreciation expense is systematically recognized by debiting Depreciation Expense and crediting Accumulated Depreciation (though not explicitly detailed here, it reduces property & equipment's net book value). The recognition of income tax expense follows the accrual basis, with approximate cash payments recorded differently from the total tax expense, which affects liabilities and cash flow statements. At year's end, the remaining balances of all accounts are compiled into a trial balance, which must balance, confirming the accuracy of posting.

Following the trial balance, income statement preparation involves summing revenues and deducting expenses to determine net income. The 2013 income statement of Noodles & Company illustrates total revenues, including restaurant sales and franchise fees, against total expenses such as cost of sales, wages, administrative costs, pre-opening expenses, depreciation, and interest, culminating in net income. The statement of retained earnings reconciles beginning retained earnings with net income, subtracts dividends (if any), and arrives at the ending retained earnings balance.

The balance sheet consolidates the company's financial position at year-end, listing current assets, property & equipment net balances, current liabilities, long-term liabilities, and stockholders' equity, including common stock, treasury stock, and retained earnings. This comprehensive snapshot helps stakeholders assess the company's liquidity, solvency, and capital structure.

The closing process involves transferring temporary account balances—revenues and expenses—to retained earnings by means of closing entries. These entries debit revenue accounts and credit income summary, and vice versa for expense accounts, ultimately updating retained earnings to reflect the year's net income or loss. Post-closing, temporary accounts reset to zero, preparing for the next fiscal period.

This case study exemplifies the application of the accounting cycle—identification of transactions, journalizing, posting, trial balance preparation, financial statement development, and closing activities—integral to accurate financial reporting and decision-making. Adhering to these steps ensures compliance with accounting standards such as GAAP, enhances transparency, and provides valuable insights into Noodles & Company's operational efficiency and financial health for 2013.

References

  • Accounting Standards Codification (ASC). Financial Accounting Standards Board. (2023). Accounting Standards Updates.
  • Higgins, R. C. (2012). Analysis for Financial Management. McGraw-Hill Education.
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