Abstract This case presents an introduction to the primary financial statements and related fundamental concepts, such as cash versus accrual accounting, matching and the usefulness of financial information to decision makers. The case can be used at both the undergraduate and graduate levels. It provides the instructor the opportunity to present a brief overview or an extended introduction to financial accounting and reporting. The case takes the student through the entire accounting process, from preparation to evaluation of financial statements, for a newly-formed company that is attempting to obtain venture capital financing. The case begins with a description of the business and its beginning balance sheet, followed by a set of projected events for the first year of production. It uses a transactional analysis approach that does not require the use of debits and credits, and requires no prior knowledge of accounting mechanics. The analysis also demonstrates the interrelations among the financial statements. Finally, the case requests students to first take management's perspective in preparing the financial statements, and then to switch to an investor's role in evaluating the firm's financial performance. An innovative feature of this case is that it is based on an actual start-up firm and was prepared in consultation with several venture capitalists.
Alciatore et al. (Sun,) studied this question.