Maya Chen
Social media strategist. She invoices clients, chases payments, and occasionally has to write someone off. This one is personal.
Maya has been referring clients to Frame and Co., a boutique content production studio. Their tagline: "We make brands worth watching." They are talented. But their financial statements? That is a different story.
Maya is reviewing their books before deepening the partnership and she needs your help figuring out what is wrong.
Act 1: Revenue Reality Check
Frame and Co.'s statements have errors. Flag what is wrong and explain why it matters to investors.
Act 2: Receivables Reality Check
One client account goes from invoice to write-off to surprise recovery. Follow the balance sheet at every stop.
"I pulled Frame and Co.'s year-end statements and something is off. I need you to find the errors. Place your 2 flags on the lines you believe are wrong, then submit to check your flags before explaining why."
THE SITUATION
Maya has been reviewing Frame and Co.'s year-end financial statements before recommending them to a fourth client. She pulled their income statement and balance sheet and immediately felt something was off. The numbers do not look right to her, but she cannot pinpoint exactly what is wrong. She needs your help.
How this works: Click any line item to place a flag on it. You have exactly 2 flags. Once both are placed, hit Submit Flags to check if you identified the right lines. If a flag is on the wrong line, you will get one more chance to move it. Reason questions only unlock for correctly flagged error lines.
Frame and Co. | Year Ended December 31
Click any line to flag it
Frame and Co. | December 31
Current Assets:
Click any line to flag it
THE TWO ERRORS EXPLAINED
Error 1: Net Sales equals Gross Sales (Income Statement)
Net Sales cannot equal Gross Sales unless Frame and Co. had zero returns, allowances, and discounts all year. Net Sales must reflect Gross Sales minus all contra revenue accounts. When those are missing the income statement overstates what was actually earned after adjustments.
Error 2: Net Realizable Value equals Accounts Receivable (Balance Sheet)
NRV cannot equal gross AR unless no bad debts are expected. The Allowance for Doubtful Accounts is completely missing. At year end Frame and Co. must estimate uncollectible accounts and record that allowance as a contra asset, reducing AR to what is actually expected to be collected.
"Frame and Co. corrected the income statement. But three months have passed and the balance sheet has new problems. Read the situation below before you start flagging."
WHAT HAPPENED SINCE YEAR END
Three months have passed since year end. Frame and Co. corrected their income statement after Maya flagged the problems. But new issues have surfaced on the balance sheet. During those three months, one of their clients, a mid-size activewear brand, officially went out of business. Frame and Co. wrote off that account. The updated balance sheet should reflect that write-off, but something is not right.
Round 2: The income statement has been corrected and is shown for reference. Focus on the balance sheet. Place your 2 flags on the lines you believe are wrong. Submit to check your flags before explaining why. You have 2 attempts per explanation.
Frame and Co. | Year Ended December 31
Income statement is correct
Frame and Co. | Updated
Current Assets:
Click any line to flag it
"Before we move on, I want to make sure you understand why this matters, not just what was wrong."
EVALUATE THIS CLAIM
Frame and Co.'s sales manager tells Maya: "Our revenue was $180,000 this year. The discounts and returns are just noise." Maya disagrees. Who is right, and why does the distinction matter to an investor reading this income statement?
Act 1 Complete
Now for the Balance Sheet
You found the income statement problems. But Maya still has questions about what Frame and Co. is actually owed.
In Act 2 you will trace one specific client account from invoice through estimation, write-off, and a surprise recovery. At each stop something changes on the balance sheet. Your job is to explain what and why.
"I am tracking one specific client account through Frame and Co.'s books. Walk me through what happens at each stage. You have 2 attempts on each question."
"You made it through the full lifecycle. Now let's make sure the big concept landed."
EVALUATE THIS CLAIM
Maya looks at the corrected balance sheet and says: "At least now that NRV is fixed I know exactly what Frame and Co. will collect." Is she right? What does NRV actually promise and what does it not promise?
"Before you see your score, one final question for you."
Final Reflection
Think about a time you were owed money and were not sure if you would get it, or a time you owed someone and they were not sure about you. How does that experience connect to why accounting requires estimating bad debts before knowing who will not pay?
If you have not personally experienced this, think of someone you know or a situation you have heard about.
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Mission Complete
Here is how you did.
"Nice work."
Score Breakdown
WHAT TO DO NEXT
Download your reflection card and submit the file as directed by your instructor. If you earned the badge, it will appear on the card.