Essay Darden Case Study

881 Words Aug 24th, 2010 4 Pages
CASE STUDY #2 – DARDEN RESTAURANTS, INC. – TRANSACTIONS AND ADJUSTMENTS
Concepts
a. To prepare accrual-based financial statements, a company must adjust its accounts. This is accomplished with periodic adjustments (also known as adjusting journal entries or accounting adjustments). For each account below, explain the types of transactions or events that necessitate periodic adjustments to the account for the typical company.

i. “Inventories, net.” – If a company purchases products to be resold, there is an adjustment on the balance sheet to reflect this net inventory.

ii. “Receivables, net.” – If a company sells a product on credit, they do not receive cash, and thus although in increase in retained earnings occurs, and increase
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b. In general, what other accounts typically require periodic adjustments? In general, the other accounts that typically require periodic adjustments are prepaid expenses, accrued expenses, and accrued revenues.
c. Why do companies close their books at the end of each accounting period? What types of accounts are close in this process?
Companies close their books at the end of each accounting period in order to transfer the balance in temporary accounts into retained earnings. The closing process brings the retained earnings account up to date so that it accurately reflects the current period’s income statement activity and dividends so that the balance sheet can be prepared. The types of accounts that are closed in the process are all the income statement accounts and any dividend account.
Process
d. For each item in quotations, provide the year-end total disclosed in Darden’s 2007 income statement. Write a journal entry to record the activity for the year. Assume that the company recorded a single (summary) journal entry. i. “Sales.” Assume that 5% of sales are on account, 3% of sales represent gift card redemption, and the rest are cash sales.
AR 278.36
Cash 5,121.73
UR 167.01 Liabilities 167.01 Sales 5,567.10

ii. “Interest, net” expense. Assume that all these costs were paid in cash. Interest, net
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