Cash Flow Statement for Frankie's Fire & Fusion Café

Answer to Part A – Written or Oral Questions
Answer 1:
a. Assets: An asset can be defined as any item of value or any resource that is valuable and
can be converted into cash or cash equivalent. Assets have value and are owned by
companies or individuals to reap their benefit over a longer period of time by generating
revenue or income from the use of the asset.
b. Liabilities: Liabilities can be defined as financial obligation that the company or
individual own in the course of operations. These are financial benefits that must be paid
by the company and thus create an obligation for them.
c. Equity: This is the share in the company owned by the shareholders. In a single word
equity is the stock of the company. It is issued by the company to the shareholders giving
them right in the share of the company.
d. Cost of Sales: Cost of sales is the direct cost incurred by the company to generate the
sales made by it. Also known as the Cost of Goods Sold, it is the cost of purchasing the
raw material for the goods to be manufactured by the company or the direct cost incurred
by the company to provide the offered services.
e. Income: Income is the receipt of money by the company for the sale of goods/services
that it provides. It is simply the money that the company or individual gets by selling the
goods or services to its customers.
f. Expense: Expenses can be defined as costs that must be incurred by the company to
generate sales and revenue. These are monetary payments that must be paid to convert
sales for the company.
Answer 2:
Examples of the above related to the hospitality industry is as below:
a. Assets: The hotel building, cash, inventory in terms of available rooms etc.
b. Liabilities: Providing rooms against advance booking
c. Equity: Stake in the hotel ownership or
d. Cost of sales: Room services cost
e. Income: Tariffs, Revenue from meals, laundry etc.
f. Expense: Staff Salary, Housekeeping, meals etc.
Answer 3:
The first date of the Australian financial year is 1st July and the last date is 30th June. There are
no other reporting periods and the hospitality businesses follow the same period.
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Answer 4:
The two methods of Financial Reporting are:
1. Cash method of Accounting
2. Accrual method of accounting
Answer 5:
Cash method of Accounting: Under this method, income and expenses are recorded in the books
of accounts only when they are received and paid by the company. The company records the
income or revenue only when the cash is received by it and subsequently all expenses are
recorded only when the payment for the same has been made.
This is simple to use and applicable for small businesses having turnover of $25,000,000 or less
for the past three tax years and also applicable to individuals having business which is 95%
related to providing services.
Accrual method of Accounting: Under this method, companies recognise the revenue when they
are earned by them and not when they are realised. Further, expenses matching with the revenues
are also reported when the revenues are earned irrespective whether they have been paid or not.
This is used by companies having turnover of more than $25,000,000.
Answer 6:
Fixed costs are stagnant cost which does not change with the change in the activity level of the
hotel. They are constant and fixed irrespective of the operations of the hotel.
On the other hand, Variable costs are recurring expenses for the hotel which is based on the
actual activity level of the hotel. These are costs which are paid on the basis of change in some
variable on which the cost are dependent.
Answer 7:
Example of Fixed Cost: Staff Salary, license fees to the government etc.
Example of variable cost: Meal costs, laundry charges etc.
Answer 8:
The business performance indicators and benchmarks that could be used for decision making
purposes in the hospitality industry are:
 Occupancy percentage
 Rating of the hotel or unit
 The Average Daily Rate or ADR
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 The Revenue per Available Room of the hotel
 Customer Satisfaction
 Return on Investment.
Answer 9:
Sl No. Document Sl No. Description
a Source documents v Details products and services provided to a
customer
b Journal entries vi A basic document that details the financial
transactions of a company
c Transaction reports iv Report detailing specific information, such as
EFTPOS and banking records
d Account summaries & balances ix These can be obtained from the bank, and
should maintain strict vigilance over
e Balance sheets ii Shows assets, liabilities and owner’s equity
f Profit & loss statements viii Shows the revenue and expenses of a
business over a period of time
g Invoices iii Original documents in paper form that prove
a transaction has taken place
h Budget reports vii Details budgeted figures compared to actual
figures
i Expenditure reports i Details budgeted spending vs actual spending
Answer 10:
It is important for hospitality business to review the above financial information regularly so as
to remain abreast with the health of the company and thus take remedial corrective action for any
adverse account immediately. Reviewing the financial information regularly gives the company
an edge on controlling and monitoring requirements. This enables them analyse the variances
from budgeted at an early stage thus giving better control.
Answer 11:
The basic rules under pinning the double entry bookkeeping are:
 For every single debit entry in the books, there must be an equal and a corresponding
credit entry and vice versa
 The rules of debit and credit for personal account
o Debit the receiver;
o Credit the giver.
 The rules of debit and credit for Real Accounts
o Debit What Comes in;
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