Cookie Creations:

A financial accounting journey

Gabriel Silguero May 15, 2013 ACC-502-O101

Major Business Development:

Natalie Koebel incorporates her business as Cookie Creations Inc.
- By establishing her company as a Corporation, Natalie has significantly reduced her personal liability as well as made it easier for her to raise funds by selling stock. She will, however, have to pay more taxes than a sole proprietorship or partnership (Kimmel, et al., 2011). - Natalie plans on teaching group and individual cookie classes.
Kimmel, P., Weygandt, J., Kieso, D. (2011) - Financial accounting tools for business decision making 6th Ed.

Major Business Development:

Cookie Creations Inc. becomes a distributor of fine European mixers.
- In addition to teaching cookie classes, Natalie decides that she will also purchase mixers wholesale and become a retailer of fine European mixers. - Natalie had a decision to make in which method of keeping inventory to choose (Perpetual vs. Periodic), and which cost flow assumption to use (FIFO vs. LIFO). - Natalie decided to use the *Periodic inventory system and I advised her to use the *FIFO method.
Kimmel, P., Weygandt, J., Kieso, D. (2011) - Financial accounting tools for business decision making 6th Ed.

*Why Periodic?
- With this system of tracking inventory, Natalie will not have to keep detailed records throughout the entire accounting period. Instead she will determine the cost of goods (mixers) on hand at the beginning of the accounting period. She will then take a physical inventory of the mixers she has left at the end of the accounting period and subtract it from the cost of goods at the beginning of the period to determine her cost of goods sold (Kimmel, et al., 2011). - I would have advised Natalie to utilize the perpetual system due to the fact that each mixer already had an individual barcode and would have allowed for her to determine cost of goods sold after every transaction (Kimmel, et al., 2011).

*Why FIFO?
- Obtaining a bank loan was the only factor in determining which cost flow method Natalie implemented. Because of this, I advised her to use the First-in, firstout (FIFO) method. The reason she should implement FIFO is due to the fact that the cost of the mixers are expected to increase, thus inflating the price to purchase new mixers while the cost of the older, lower cost mixers, are the first inventory being matched against her revenue. This, in turn, produces a higher net income (Kimmel, et al., 2011). - This higher net income will help Natalie in obtaining a loan as her financial statements will show more revenue and higher net income.

Kimmel, P., Weygandt, J., Kieso, D. (2011) - Financial accounting tools for business decision making 6th Ed.

Major Business Development:

Natalie Koebel and Curtis Lesperance form a new corporation: Cookie & Coffee Creations Inc.
- Natalie and Curtis assets from each of their respective businesses were transferred to Cookie & Coffee Creations Inc. at current market value. - Cookie and Coffee Creations Inc. is authorized to issue 50,000 shares of common stock and 10,000 shares of preferred stock. The sale of Cookie and Coffee Creations Inc. stock is a great way to raise capital for the business.
Kimmel, P., Weygandt, J., Kieso, D. (2011) - Financial accounting tools for business decision making 6th Ed.

Cookie & Coffee Creations Inc. Statement of Cash Flows

Indirect Method COOKIE & COFFEE CREATIONS INC. Statement of Cash Flows For the Year Ended October 31 Cash flows from operating activities net income adjustments for net income depreciation expense loss on sale equipment inventory accounts receivable prepaid expenses accounts payable salaries payable income tax payable interest payable NET CASH Noncash investing and financing activities notes payable for kitchen expenses

37,002 17,600 2,500 447 540 250 1,300 5,970 2,051 188

26,272 63,274

12,000

Statement of Cash Flows Key Figures

COOKIE & COFFEE CREATIONS INC. Statement of Cash Flows For the Year Ended October 31

Cash flows from operating activities cash receipts from customers suppliers operating expense and salaries interest income tax NET CASH FROM OPERATING ACTIVITIES INVESTING ACTIVITIES (NET CASH) Sale of computer equipment purchase of kitchen equipment purchase of computer equipment purchase of furniture and fixtures NET CASH USED BY INVESTING ACTIVITIES CASH FLOW FROM FINANCING ACTIVITIES preferred stock repayment from notes payable cash dividends NET CASH FROM FINANCING ACTIVITIES NET INCREASE IN CASH NOVEMBER 1, CASH OCTOBER 31, CASH

485,085 224,441 189,945 445 7200

421,811 63,274

500 2,000 4,000 13,000 18,500

1,000 2,000 27,000

28,000 16,744 5,550 22,324

Financial Health Analysis as of October 31, 2014

Current Ratio (Current Assets/ Current Liabilities): 2014: $25,000/ $17,839 = 1.40: 1 VS 2013: $8,260/ $10,930 = 0.76: 1
The Current Ratio for 2014 for Cookie & Coffee Creations Inc. shows that for every dollar of current liabilities, there is $1.40 of current assets available for use. This is a significant increase from the 2013 current ratio. The Debt to Total Assets Ratio for 2014 for Cookie & Coffee Creations Inc. shows that every dollar of assets was financed by .47 cents of debt. There is an increase from the 2013 ratio by 5%.

Debt to Total Assets Ratio (Total Liabilities/ Total Assets): 2014: $54,839/ $116,071 = 47% VS 2013: $37,930/ $88,160 = 43%

Financial Health Analysis as of October 31, 2014 contd

Profit Margin Ratio (Net income/ Net sales): 2014: $37,002/ $485,625 = 7%
The Profit Margin Ratio for 2014 for Cookie & Coffee Creations Inc. shows that 7% of each dollar of sales resulted in net income.

Overall Assessment
Cookie & Coffee Creations Inc. has close to doubled their availability of liquid assets in relation to their current liabilities. Although they have increased 5% the amount of total assets that is financed by debt (43% in 2013 to 47% in 2014), they have enough liquid and long term assets to back up their debt financing as well as enjoying $37,002 in net profit for 2014. Finally, their Profit Margin Ratio at 7% is well above the Special Eatery industry average of 3.7%*. Cookie & Coffee Creations Inc. has shown steady increases in assets and only minor increases in long-term liabilities for 2013 to 2014. I feel that they are in a great spot and will continue to enjoy success
*http://biz.yahoo.com/p/sum_qpmd.html

Group Successes & Challenges

The biggest success in working with the Blue Group for this accounting class was the fact that we always took the time to coordinate with each other regardless of the time zones that we all live in. This meant that we were always courteous to one another in turning in assigned portions of projects at decent times throughout the day that respected the time zones of other group members.
The biggest challenge always seemed to be consolidating all of the information that we would input on the CCC excel spreadsheet. This meant we had to do a lot of cutting and pasting. Perhaps the use of a group collaboration system such as Google docs would have alleviated this challenge.

3 Most Important Concepts I Learned

1) Liquidity, Solvency and Profitability Ratios The use of these ratios give a great visual of where a company may be relying too heavily on debt, the trouble or ease of creating liquid assets, and their ability to extract profit from sales just to describe a few uses. This will help me to analyze my own business as well as businesses that I would like to invest my time and money in. 2) Use of Financial Statements Learning how to interpret a balance sheet and analyzing an income statement once again gives me an advantage in my own business and advantages when researching other competitors in my industry or other companies that I may want to invest in. 3) Reconciling of Bank Accounts I learned that there is great value in reconciling my bank accounts and that I cannot rely on a bank to give me the most accurate and up to date information on the cash and receivables that I should be expecting. I should take initiative and reconcile my bank account on my own.