Accounting Performance and Financial Position of a Cafe and Surf School

This report analyzes the performance and financial position of a cafe and surf school, including revenues, expenses, retained earnings, and the company's financial position. Recommendations are provided for future investments.

ACCOUNTING

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
PART 2............................................................................................................................................1
Introduction..................................................................................................................................1
Performance of the business........................................................................................................1
Retained Earnings........................................................................................................................1
Financial position of the company...............................................................................................2
Following period recommendation..............................................................................................2
Conclusion...................................................................................................................................3
REFERENCES................................................................................................................................4

PART 2
Introduction
Don runs the cafe and surf school in Manly. It is popular with the domestic and international
locals. It is running both cafe and a surf successfully from years. Surf school provides lessons on
weekly basis and has a teacher for giving the lessons. Don has also employed her daughter in
cafe on weekly remuneration. It has also started a advertising campaign for promoting the
business. Cash is withdrawn from the business in the form of dividends on monthly basis. Don is
also planning to make expenditures over the business. Decisions are to be taken regarding
whether to purchase kitchen equipments or 15 surfboards. Report is about the business
transactions carried out in the month of September. It will enhance the concepts of accounting
and of recording the business transactions.
Performance of the business
Don is successfully running both the businesses. From the cafe revenues of $39582 are
in the month of September and from the surf lesson of $26400. Revenues from cafe are higher
than the surf boards. It is adequate revenues from both the business. Expenses are also incurred
for generating the revenues. Cost of sales of the cafe is $18722 for September. In the surf lessons
remuneration is given to the surf teacher for giving the lessons that costs $ 4384. Other common
business expenses are also incurred such as advertising, wages to Gina for handling the cafe,
fuel, insurance, interest over loan and the depreciation expenses. Company is earning high profits
around 43%. Business are doing excellently well with the available resources. Returns over the
business are adequate which shows that operations of the business are successfully managed by
Don.
However it could be pointed out that cost of sales of the cafes business is high as against
its sales (Li and Sloan, 2017). It is required to reduce its cost of sales. For reducing the cost of
sales it could adopt lean production, just in time or the total quality management in the cafe
house. This will enable the company to purchase the products only when needed this will reduce
inventory storage and the carrying cost of inventory.
Retained Earnings
Retained earning refer to the amount left with the company after carrying out its expenses.
It is the accumulation of profits and reserves of the business. Current retained earnings of the
company is $45833. During the month business reported earnings of $28291 after meeting all the
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business expenditures and accounting all the revenues. Retained earnings of the last month were
$23542. Profits of the month are significant. A monthly fixed dividend amounting to $ 6000 to
Don from the retained earnings. Retained earnings of the company could be increased by
increasing the revenues (Duska, Duska and Kury, 2018). By taking promotional steps it can
increase its revenues at the same time keeping its costs under control. Retained earning are
important for the business. It can also make investments from the retained earnings over short
term or long term investment for earning returns on the funds.
Financial position of the company
Financial position refers to the wealth of the business and its market standing. Financial
position is represented by the balance sheet of the company. It consists of assets and liabilities of
the company. During the month major changes in the availability of the cash balances they have
raised significantly due to increased sales revenues. Inventory has decreased from last month.
Prepaid insurance is decreased due to recording of monthly insurance expense.
Non current assets of company such as motor boat and plant and equipment are recorded
at cost and deprecation is shown on liabilities as accumulated depreciation. It is charges at fixed
rate on straight line method. There is no change in the goodwill.
Current liabilities of the company comprise of advance deposits and accounts payable.
Advance deposit are reduced to half than in previous year. Accounts payable do not represent
higher changes. Company has bank loan of 225000 for a period of 5 year. In equity section there
has been no addition or reduction during month (Libby, 2017). Retained earning of the company
has increased to significant level accounting the profits for the month.
Financial position could be increased by making investments in return generating sources
and making purchase of equipments and other non current assets like land or building. It is not
having high loans except the banks loan that was taken for initiation of the business. It should
ensure that the liabilities are not raised by the business.
Following period recommendation
Don for the business is proposing to make expenses in either in kitchen equipment for
increasing the speed and efficiency or in purchasing the 15 new surfboards. Business has been
performing well and is also having strong financial position. Retained earnings have also
increased after the current month. It is having enough funds available with the business for
making purchases of either of the two.
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Kitchen equipments will increase the speed of the cafe business. This will enable the
company to increased number of customers. Along with revenues costs of sales with also
increase. While on purchasing surf board it will not be required to incur any further expenses
except the teacher’s remuneration that is considerably low in proportion to the cost of sales
against the revenues (Kieso, Weygandt and Warfield, 2019).
It should purchase 15 surf boards as it will be more profitable for the business as compared
with purchasing kitchen equipments. This will more profitable for the business to run surf
boards.
Conclusion
The overall performance of the business is good also the position of the business. The
strategic approach followed by the company to run its operation is good. Focus is need to be
given over reducing the inventory level. Also it is required to make investment for increasing the
value of its business. It is essential for the business to manage its available resources for the long
term sustainability of the company.
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REFERENCES
Kieso, D.E., Weygandt, J.J. and Warfield, T.D., 2019. Intermediate accounting. John Wiley &
Sons.
Libby, R., 2017. Accounting and human information processing. In The Routledge Companion to
Behavioural Accounting Research (pp. 42-54). Routledge.
Duska, R.F., Duska, B.S. and Kury, K.W., 2018. Accounting ethics. John Wiley & Sons.
Li, K.K. and Sloan, R.G., 2017. Has goodwill accounting gone bad?. Review of Accounting
Studies, 22(2), pp.964-1003.
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